REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2020 (prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances)
Date: 2019-12-17
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU Member State, economic disparity, economic growth, economic recovery, economic statistics, euro area, macroeconomics, multilateral surveillance, national accounts, public debt

EN 

  EN 

   EUROPEAN COMMISSION  Strasbourg, 17.12.2019  COM(2019) 651 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE                  Alert Mechanism Report 2020                  (prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances) {SWD(2019) 630}  
 
 
The  alert  mechanism  report  (AMR)  is  the  starting  point  of  the  annual  cycle  of  the  macroeconomic 
imbalance procedure (MIP), which aims to  identify and address imbalances that hinder "the proper 
functioning of the economy of a Member State or of the economic and monetary union, or of the Union 
as a whole" (Article 2(1) of Regulation (EU) No 1176/2011).1  

The  AMR  analysis  is  based  on  the  economic  reading  of  a  scoreboard  of  selected  indicators, 
complemented  by  a  wider  set  of  auxiliary  indicators,  assessment  tools  and  additional  relevant 
information, to screen Member States for potential economic imbalances in need of policy action. The 
AMR identifies Member States for which analysis in an in-depth review (IDR) is needed to assess how 
macroeconomic  risks  in  the  Member  States  are  accumulating  or  winding  down,  and  to  conclude 
whether imbalances or excessive imbalances exist. Taking into account discussions on the AMR with 
the  European  Parliament  and  within  the  Council  and  the  Eurogroup,  the  Commission  will  then 
prepare  IDRs  for  the  Member  States  concerned.  Following  established  practice,  an  IDR  is  at  any 
event prepared for Member States for which imbalances were identified in the previous round of IDRs. 
The IDRs will be incorporated in the country reports. IDR findings will feed into the country-specific 
recommendations (CSRs) under the European Semester for economic policy coordination.  

1.  EXECUTIVE SUMMARY 

This report initiates the ninth annual round of the macroeconomic imbalance procedure (MIP).2 
The  procedure  aims  at  identifying  imbalances  that  hinder  the  smooth  functioning  of  Member  State 
economies, the economic and monetary union or the Union as a whole, and spurring appropriate policy 
responses. The implementation of the MIP is embedded in the European Semester of economic policy 
coordination to ensure consistency with the analyses and recommendations made under other economic 
surveillance tools. The annual sustainable growth strategy (ASGS), which is adopted at the same time as 
this  report,  takes  stock  of  the  economic  and  social  situation  in  Europe  and  sets  out  broad  policy 
priorities for the EU. 

This report identifies Member States for which in-depth reviews (IDRs) should be undertaken to 
assess whether they are affected by imbalances in need of policy action.3 The alert mechanism report 
(AMR) is  a screening  device  for  economic  imbalances,  published  at  the  start  of  each  annual  cycle  of 
economic  policy  coordination.  The  analysis  in  the  AMR  makes  use  of  the  economic  reading  of  a 
scoreboard of indicators with indicative thresholds, alongside a set of auxiliary indicators. The AMR in 
section  2  includes  an  analysis  of  the  euro  area  wide  implications  of  Member  Statesʼ  imbalances  and 
examines  the  extent  to  which  a  coordinated  approach  to  policy  responses  is  needed  in  light  of 
interdependencies within the euro area.4 In this particular respect, the analysis contained in this report 

1 [In the event that the United Kingdom leaves the Union on the basis of the Agreement on the withdrawal of the 
United  Kingdom  of  Great  Britain  and  Northern  Ireland  from  the  European  Union  and  the  European  Atomic 
Energy Community ('the Withdrawal Agreement', OJ C 384 I, 12.11.2019, p. 1), Union law will continue to apply 
to and in the United Kingdom, for the duration of the transition period established by the Withdrawal Agreement.] 
2 This report is accompanied by a  statistical annex, which contains a wealth of statistics that have contributed to 
inform this report.  
3 See Article 5 of Regulation (EU) No 1176/2011. 
4 More attention to the euro area dimension of imbalances was proposed in the 22 June 2015 Report ʽCompleting 
Europeʼs  Economic  and  Monetary  Unionʼ  by  Jean-Claude  Juncker,  Donald  Tusk,  Jeroen  Dijsselbloem,  Mario 
Draghi and Martin Schulz. The role of interdependencies and systemic implications of imbalances is recognised in 
Regulation (EU) No 1176/2011, which defines imbalances with reference to "macroeconomic developments which 

1 

 
 
 
 
 
 
                                                      
 
accompanies the assessment provided in the European Commission Staff Working Document "Analysis 
of  the  Euro  Area  economy",  accompanying  the  Commission  Recommendation  for  a  Council 
Recommendation on the economic policy of the euro area. 

The AMR analysis is carried out against the background of a changing economic outlook, where 
the economic expansion is weakening and inflation expectations have been revised downward. The 
European Commission autumn 2019 economic forecast estimates real GDP growth to be 1.4% in the EU 
and  1.1%  in  the  euro  area  in  2019,  implying  a  deceleration  compared  with  2%  and  1.9%  in  2018 
respectively.  For  2020,  GDP  is  forecast  to  grow  by  1.4%  and  1.2%  in  the  EU  and  the  euro  area 
respectively. Data since late 2018 have pointed towards a loss of momentum, notably in net exports and 
in manufacturing output. The slowdown has been particularly visible in large euro area Member States 
more exposed to trade, on the back of heightened uncertainty surrounding the trade policy environment.5 
Inflation  expectations  have  declined  considerably,  leading  to  measures  by  monetary  authorities  in the 
second  half  of  2019  to  counter  the  incipient  slowdown  in  output  and  prices.  Bond  yields  moved 
downward,  especially  for  longer  maturities.  Despite  the  recent  reduction  in  headline  inflation  and 
productivity growth, wage growth since 2018 has somewhat strengthened, amid tighter labour markets. 

Existing  macroeconomic  imbalances  have  been  gradually  correcting  amid  favourable  economic 
conditions.  Following  a  widespread  post-crisis  deleveraging  process,  a  number  of  “flow”  imbalances 
and unsustainable trends have been corrected (notably, large current account deficits, excessive credit 
growth  fuelling  house  prices,  strong  unit  labour  costs  implying  cost  competitiveness  losses).  The 
correction of vulnerabilities linked to “stock” imbalances (high private, government, and external debt) 
has  started  later  and  progressed  more  slowly,  but  debt-to-GDP  ratios  embarked  more  firmly  on  a 
downward trajectory with the economic expansion and resumed price growth over recent years. At the 
same time, the acceleration of economic activity has recently been accompanied by buoyant growth in 
unit labour costs and house prices in a number of Member States.  

The  changing  outlook  may  imply  a  slower  adjustment  of  existing  imbalances  or  the 
materialisation  of  new  risks,  in  a  context  where  the  room  for  policy  to  deal  with  shocks  is 
narrowing.  Downward  risks  to  the  economic  outlook  relate  in  particular  to  trade  tensions  and  the 
disruption  of  global  value  chains,  a  stronger  than  expected  slowdown  in  emerging  markets,  the 
aggravation  of  geo-political  tensions.6  Nominal  growth  is  expected  to  weaken,  implying  a  less 
supportive environment for debt reduction. The considerable reduction in interest rates reduces the cost 
of  debt,  but  also  brings  challenges  linked,  inter-alia,  to  weaker  incentives  to  deleverage,  possible 
excessive  risk  taking  induced  by  search  for  yield,  reduced  profitability  of  financial  institutions  in  a 
context of flatter yield curves.7 The room left for monetary policy to address policy shocks is narrowing, 
and the possibility of cushioning shocks  via private and public savings varies considerably across the 
EU and is limited by high debt ratios in a relevant number of Member States. 

are  adversely  affecting,  or  have  the  potential  adversely  to  affect,  the  proper  functioning  of  the  economy  of  a 
Member State or of the economic and monetary union, or of the Union as a whole." 
5 The World Trade Uncertainty Index shows major increase in large European economies as well as in other major 
economic areas. https://www.policyuncertainty.com/wui_quarterly.html 
6 See also International Monetary Fund, World Economic Outlook, October 2019; European Commission (2019), 
European Economic Forecast, Autumn 2019, Institutional paper 115, November 2019. 
7  See  also  Bank  of  International  Settlements,  Annual  Economic  Report,  June 2019; and,  International Monetary 
Fund, Global Financial Stability Report, April 2019. 

2 

 
 
 
 
 
                                                                                                                                                                    
The horizontal analysis presented in the AMR leads to a number of conclusions: 

  Current  account  balances  have  slightly  moved  downward  across  the  EU  in  2018,  deficit 
positions remaining an exception and large surpluses persisting. With few exceptions, countries 
that  have  previously  recorded  large  current  positions  are  currently  displaying  broadly  balanced 
current accounts, while some Member States have continued running large and persistent surpluses 
above  levels  justified  by  fundamentals.  Slowing  trade,  resilient  domestic  demand,  and  rising  oil 
prices detracted from current account balances across the board.  

  Net  international  investment  positions  (NIIPs)  have  been  improving  at  a  higher  pace,  but 
large  stocks  of  external  liabilities  persist  in  a  number  of  Member  States.  Prudent  current 
account positions and continued nominal growth in recent years have underpinned the reduction in 
the ratio of external financial liabilities to GDP. The NIIPs of net debtors have improved faster than 
before  also  due  to  positive  valuation  effects  that  however  may  not  last.  NIIPs  remain  largely 
negative  in  a  number  of  EU  countries  and  some  of  the  latest  current  account  outturns risk  being 
insufficient  to  ensure  improvements  of  these  external  stock  positions  at  an  appropriate  pace.  In 
parallel, large  net  creditors  have  been  recording  increasingly  positive  NIIPs  on  the  back  of  large 
current account surpluses. 

  Unit labour costs (ULCs) have been growing at a faster pace in many Member States due to 
both  wage  acceleration  and  reduced  productivity  growth.  Stronger  wage  growth  is  recorded 
across  the  EU  against  the  backdrop  of  tighter  labour  markets.  The  acceleration  in  ULC  is  also 
increasingly linked to a moderation in productivity growth. In a few cases, notably in central and 
eastern  European  and  Baltic  countries,  the  marked  ULC  growth  is  the  continuation  of  a  trend 
started some years ago, and which is associated with rising labour demand coupled with skill gaps 
and  labour  supply  bottlenecks  in  economies  with  below-average  wage  levels.  To  a  lesser  extent, 
ULC  growth  edged  up  more  recently  also  in  euro  area  countries.  While  ULC  growth  has  been 
higher in net-creditor countries than in net-debtor ones, this difference is narrowing as a result of 
which  cost  competitiveness  developments  are  becoming  less  supportive  of  more  symmetric 
rebalancing.  

  Real effective exchange rates (REERs) have been appreciating. Since 2016, REERs have been 
appreciating  in  a  number  of  countries  against  the  backdrop  of  accelerating  unit  labour  costs  and 
nominal appreciations. That followed years where relative costs and prices for many EU Member 
States  were  falling  thanks  to  nominal  exchange  rate  depreciations  and  subdued  cost  and  price 
inflation  compared  with  competitors.  The  sectoral  reallocation  from  non-tradable  to  tradable 
activities, which has been recorded in net-debtor countries for a number of years after the crisis, is 
decelerating, coming to a halt, or reverting.  

  Private  sector  deleveraging  is  proceeding  largely on  the  back  of  nominal  GDP  growth,  and 
the pace of deleveraging has fallen for household debt.  Net savings in the private sector have 
reduced, and falling debt/GDP ratios are increasingly the result of nominal GDP growth. The pace 
of  deleveraging  has  slowed  down,  reflecting  both  reduced  savings  and  a  slowdown  in  GDP. 
Households  in  particular  have  been  increasing  their  borrowing  in  a  growing  number  of  Member 
States. While deleveraging has taken place in most of the countries with high debt ratios, private 
debt  ratios  have  nevertheless  increased  in  a  few  high-debt  countries.  Government  debt  has  kept 
declining  in  most  Member  States,  but  in  a  few  high-debt  countries  reductions  were  absent  or 
limited. Government bond yields nonetheless declined remarkably in 2019, including for the most 
indebted sovereign borrowers.  

3 

 
 
 
  The  resilience  of  the  EU  banking  sector  has  improved  but  some  challenges  remain. 
Capitalisation  ratios  have  stopped  growing  from  levels  above  regulatory  standards.  Returns  on 
equity  have  also  stabilised  after  having  improved  over  past  years.  Non-Performing  Loans  (NPL) 
ratios have fallen considerably over recent years, and substantial drops in bad loans are currently 
confined to those countries with high NPL ratios.  Nonetheless, challenges remain in a number of 
EU  countries  still  characterised  by  relatively  low  capitalisation  and  profitability  and  high  NPL 
ratios. The changing outlook characterised by low-for-long interest rates and weakening economic 
growth is adding to those challenges.  

  House  prices  continued  growing  quickly  during  2018,  but  price  dynamics  cooled  where 
evidence of overvaluation is stronger. House prices continued to grow in 2018, and in a growing 
number  of  countries  house  price  valuations  are  above  peaks  since  mid-2000s  and  likely  to  be 
overvalued. The strongest growth in house prices was however recorded in various EU countries 
that  so  far  have  shown  only  limited  evidence  of  overvalued  house  prices.  By  contrast,  in  those 
countries where concerns with overvaluation have been stronger and household debt is high, prices 
often decelerated. In some countries, new mortgage credit appears on the rise, which could lead to 
further house price accelerations going forward. 

  Labour  markets  continued  to  improve  and  unemployment  has  fallen  in  all  EU  Member 
States.  Unemployment  has  further  dropped  across  the  EU,  notably  for  youth  and  the  long-term 
unemployed.  Labour  market  tightening  was  somewhat  reflected  in  stronger  wage  growth  also  in 
euro area countries. However, since the recovery, real wage growth was below labour productivity 
growth  until  2017,  with  a  reversal  taking  place  only  since  2018.  While  rising  labour  incomes 
thanks to employment and wage growth has helped the domestic demand expansion, there is little 
evidence of a pass through of wage increases into price inflation.8 

In the current economic context, rebalancing in the euro area of both current account deficits and 
surpluses is pressing and would be beneficial for all Member States. The euro area current account 
surplus is forecast to edge downward amid slowing export demand, while remaining close to its peak 
and above levels consistent with economic fundamentals. The euro area surplus grew in light of a strong 
export  performance  and  major  deleveraging  processes  involving  various  sectors  of  the  economy, 
including in countries with little or no deleveraging needs. The most recent moderation mainly reflects 
the weakening of global trade and a higher energy balance deficit. In the current economic context, there 
is a stronger case to progress with rebalancing at the euro area level of both current account deficits and 
surpluses,  to  help  overcoming  the  low-inflation,  low-interest-rate  environment,  and  to  reduce  the 
dependency  on  foreign  demand.  Against  this  backdrop,  an  appropriate  combination  of  policies  across 
euro  area  members  is  needed  that  takes  into  account  interdependencies  and  spillovers.  While  large 
current  account  deficits  in  many  net-debtor  countries  have  been  corrected  in  the  past,  their  current 
account  positions  are  weakening  and  the  large  stocks  of  foreign  and  domestic  debt  require  continued 
prudent  current  account  balances  and  ensuring  an  appropriate  pace  of  debt  reduction  while  pursuing 
reforms that raise the GDP growth potential. In net-creditor countries, the window for financing at low 
interest rates, should be seized to achieve a continued increase in public and private investment. The use 
of the favourable fiscal position to support investment and other productive spending in those countries 
would also help to make growth prospects less dependent on foreign demand, and support rebalancing 
in the euro area.  

8 See Box 1 for an overview of main recent employment and social developments in the EU. 

4 

 
 
 
                                                      
All  in  all,  sources  of  potential  imbalances  are  broadly  the  same  as  those  identified  in  the  AMR 
2019, but prospects appear to be worsening in a number of respects. External stock positions have 
been  improving  at  faster  pace  amid  favourable  economic  conditions,  but  further  improvements  are 
clouded by weakening current account balances and lower nominal GDP growth. Large current account 
surpluses persist, while competitiveness developments have become less supportive of rebalancing and 
real effective appreciations are becoming more widespread. Private sector deleveraging is taking place 
at  slower  pace,  even  in  some  cases  where  debt  is  already  high,  and  has  been  relying  increasingly  on 
nominal  GDP  growth.  The  weakening  prospects  for  nominal  growth  raises  the  question  whether 
deleveraging  in  high-debt  countries  can  continue  without  increased  private  or  government  savings  or 
enhanced  GDP  growth  potential.  After  years  of  considerable  improvements,  the  situation  of  the 
financial sector has stabilised but new challenges may emerge going forward linked to the low interest 
rate environment. House price growth remains strong, bringing house price valuations to peak levels in 
a growing number of EU countries. Decelerations are taking place in overvalued markets, but resuming 
mortgage credit in some countries may make strong house price growth self-sustaining.  

Potential  sources  of  imbalances  combine  according  to  a  number  of  typologies.  A  number  of 
Member  States  are  affected  by  multiple  and  interconnected  debt  vulnerabilities  possibly  reflecting  to 
some extent the conditions of the financial sector. In  a few Member States, vulnerabilities are mainly 
linked  to  large  and  persistent  public  debt  coupled  with  lacklustre  productivity  and  competitiveness 
impinging  on  the  growth  potential.  Some  Member  States  are  characterised  by  large  and  persistent 
current  account  surpluses.  For  some  Member  States,  concerns  are  linked  to  trends  in  cost 
competitiveness  possibly  coupled  with  deteriorating  external  balance  positions.  Finally,  in  a  few 
Members  the  main  challenges  come  from  trends  in  house  prices  in  some  cases  coupled  with  large 
household debt. 

The upcoming challenges call for a forward-looking orientation of MIP surveillance. In light of the 
correction of most flow imbalances and the gradual reduction of stock imbalances, the MIP surveillance 
is gradually focusing more on the monitoring of possibly unsustainable trends that could crystallise over 
the medium term. At the same time, the changing economic situation, including the risks that emanate 
mainly from the economic environment external to the euro area and the EU, make it important to also 
assess imbalances from the euro area and EU perspectives. 

For a number of Member States identified in the AMR, more detailed and encompassing analyses 
will  be  contained  in  the  IDRs.  As  in  recent  annual  cycles,  IDRs  will  be  embedded  in  the  country 
reports. To prepare the IDRs, the Commission will base its analysis on a rich set of data and relevant 
information  and  assessment  frameworks  developed  by  the  Commission  in  cooperation  with  Council 
committees  and  working  groups.  The  analysis  contained  in  the  IDRs  will  provide  the  basis  for  the 
identification of imbalances or excessive imbalances in Member States, and for possible updates in the 
country-specific  recommendations  (CSRs).9  Countries  for  which  imbalances  or  excessive  imbalances 
have been identified are, and will continue to be, subject to specific monitoring to ensure the continuous 
surveillance of the policies undertaken under the MIP. 

IDRs  will  be  prepared  for  the  Member  States  already  identified  with  imbalances  or  excessive 
imbalances. In line with established prudential practice, IDRs will be issued to assess whether existing 
imbalances  are  unwinding,  persisting  or  aggravating,  while  taking  stock  of  corrective  policies 
implemented. The preparation of IDRs is therefore foreseen for the 13 Member States identified with 

9 Article 6 of Regulation (EU) No 1176/2011. 

5 

 
 
 
                                                      
imbalances and excessive imbalances in light of the findings of the February 2019 IDRs.10 Ten Member 
States  are  currently  identified  with  imbalances  (Bulgaria,  Croatia,  France,  Germany,  Ireland,  the 
Netherlands,  Portugal,  Romania,  Spain,  and  Sweden),  while  Cyprus,  Greece,  and  Italy  are 
identified with excessive imbalances. 

On the basis of the analysis carried out in this AMR, the Commission does not deem necessary to 
prepare IDRs for other Member States. The AMR assessment does not point to significant additional 
risks  that  would  justify  a  new  IDR  for  any  of  the  Member  States  that  were  not  identified  with 
imbalances  or  excessive  imbalances  in  the  latest  annual  cycle  of  MIP  implementation.  However,  this 
AMR  points  to  the  need  of  close  monitoring  in  the  upcoming  country  reports  of  a  number  of 
developments  that  could  imply  macroeconomic  risks  if  protracted.  Those  developments  relate  to  unit 
labour  costs  and  implications  for  external  competitiveness  in  a  number  of  Member  States  (Czechia, 
Estonia, Hungary, Latvia, Lithuania, and Slovakia) and to housing markets and household debt (Austria, 
Belgium,  Czechia,  Denmark,  Finland,  Hungary,  Luxembourg,  Slovakia,  Slovenia,  and  United 
Kingdom).11 

2. 

THE EURO AREA DIMENSION OF MACROECONOMIC IMBALANCES 

The  euro  area  current  account  balance  has  peaked,  but  still  records  very  elevated  levels.  The 
current  account  balance  of  the  euro  area  has  moved  from  a  broadly-balanced  pre-crisis  position  to  a 
peak  of  3.2 %  of  GDP  in 2016.  Since then,  its  value  has  come  down  very  slightly,  reaching  3.1% of 
GDP in 2018 (Graph 1).12 The euro area current account surplus remains the largest worldwide, and is 
estimated to be above the level suggested by economic fundamentals (about 1.7% of euro area GDP in 
2018).13  It  mainly  reflects  the  large  surpluses  recorded  in  Germany  and  the  Netherlands,  whose 
combined external balances accounted for 2.8% of euro area GDP in 2018. At unchanged policies, the 
euro  area  adjusted  current  account  surplus  is  expected  to  fall  in  2019  according  to  the  European 
Commission autumn 2019 forecast, reaching 2.7% of GDP, and to further decline to 2.5% of GDP by 
2020. 

10  See  ʽ2019  European  Semester:  Assessment  of  progress  on  structural  reforms,  prevention  and  correction  of 
macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011ʼ - COM(2019) 
150 final, 27.2.2019.  
11  In  September  2019,  the  European  Systemic  Risk  Board  (ESRB)  issued  country-specific  warnings  and 
recommendations  on  medium-term  vulnerabilities  in  the  residential  real  estate  sector  to  nine  Member  States: 
recommendations  to  Belgium,  Denmark,  Finland,  Luxembourg,  the  Netherlands,  and  Sweden,  and  warnings  to 
Czechia, France, and Germany. Of the former group of countries, all had already received warnings by the ESRB 
in November 2016, and the same held for Austria and the United Kingdom. The MIP regulation (Regulation (EU) 
No 1176/2011) calls on the Commission to take into account any warnings or recommendations addressed by the 
ESRB to Member States subject to an IDR. 
12 The figures for the euro area current account mentioned and used here refer to the euro area "adjusted" current 
account  balance  reported  vis-à-vis  the  rest  of  the  world  (from  euro  area  balance  of  payments  statistics),  which 
report a euro area aggregate current account balance of 3.1% of GDP for 2018, and is consistent with the current 
accounts  Member  States  report  (under  the  so-called  "community  concept").  However,  Member  States  headline 
current  account  balances  sum  up  to  4%  of  the  euro  area  GDP  (balance  of  payments  figures)  and  3.8%  of  GDP 
(national accounts statistics), due to asymmetries in the intra-euro area balances reported by the different national 
statistical  authorities.  The  euro  area  figures  both  reported  from  balance  of  payments  and  national  accounts 
statistics were revised in October 2019, which hardly affected the reading for 2018, but broadly revised downward 
the euro area current account balance for the years 2009-2015. 
13  The  IMF  (External  Sector  Report  2019)  suggests  the  euro  area  current  account  "norm"  to  be  around  1.6%  of 
GDP. 

6 

 
 
 
 
 
 
                                                      
The ongoing reduction in the euro area surplus is mainly the result of a weakening trade balance. 
The energy balance is the main contributor to the reduction of the current account balance between 2016 
and 2018, on the back of rising oil prices. The energy balance recorded a deficit of  -1.7% of GDP in 
2017,  which  expanded  to  -2.1%  of  GDP  in  2018,  while  the  balance  on  remaining  goods  trade  has 
remained  roughly  stable  as  a  share  of  GDP  at  4.6%.  A  global  growth  and  trade  slowdown  since 
mid-2018,  persistent  heightened  uncertainty  surrounding  the  trade  policy  environment,  and  the 
appreciation of the euro in effective terms in 2018 are at the basis of a reduced growth rate in both euro 
area  imports  and  exports.  Monthly  data  reveal  an  ongoing  further  reduction  in  goods  exports  and 
imports of the euro area with the rest of the world in the course of 2019 (Graph 2). A number of factors 
could contribute to a further deterioration of the euro area current account going forward, including a 
relative  weakening  of  cyclical  conditions  in  other  areas  of  the  world  economy,  the  unfolding  of  the 
effects from restrictive trade policies, or higher oil prices resulting from geopolitical tensions. 

Graph 1: Euro area current account evolution: 
breakdown by country  

Graph 2: Evolution of euro area trade with the 
rest of the world  

Source:  Eurostat  Balance  of  Payments,  European 
Commission autumn 2019 economic forecast.  

Source: Eurostat Foreign Trade Statistics 
Note: Seasonally-adjusted data, current prices.  

The  factors  underpinning  the  recent  slight  reduction  in  the  euro  area  current  account  surplus 
differ from those at the root of its earlier widening.  The euro area current account position moved 
into surplus after the 2008 financial crisis because of the sharp correction of large deficits following a 
reversal  in  cross-border  financial  flows,  and  further  increased  with  the  spreading  of  the  debt  crisis  to 
Spain  and  Italy,  which  resulted  in  a  compression  in  domestic  demand  of  these  countries.  In  parallel, 
there  was  also  a  gradual  increase  in  the  large  current  account  surplus  of  Germany  amid  domestic 
demand  growing  at  a  weaker  pace  than  output,  and  deleveraging  across  all  sectors  of  the  economy. 
Overall, the widening of the euro area surplus between the financial crisis and 2016 mainly reflected a 
widespread  deleveraging  process,  which  involved  the  private  sector,  joined  by  the  government  sector 
after the aggravation of the debt crisis in 2011. The contraction in the euro area surplus since 2017 is 
mainly accounted for by a narrowing surplus in Germany and, to a latter extent, Italy and Spain, which 
are  comparatively  large  manufacturing  exporters  and  depend  on  imported  hydrocarbon  energy.  The 
recent  dynamics  in  the  euro  area  current  account  do not  appear  to  be  linked  to  a  major  re-leveraging 
process,  but  rather  to  declining  net  exports  on  the  back  of  the  global  trade  slowdown  and  a  more 

7 

-4-3-2-1012340304050607080910111213141516171819fOtherNLITFRESDEEA-19CA normCyclically-adjusted CAEA-19 adjusted forecast% of EA GDP-10-505101513141516171819y-o-y % changeExports of goods and servicesImports of goods and services 
 
 
 
 
 
 
expensive energy bill. The reduction of the euro area surplus between 2017 and 2018 is mainly reflected 
in  a  declining  net  lending  position  of  non-financial  corporations,  which  had  been  recording  positive 
values since 2013. The recent moderation of corporate net savings compensated for the improving net 
borrowing position of the government sector over the same period (Graph 4).  

8 

 
 
 
 
 
Graph 3: Euro area output, domestic demand, 
net exports and core inflation 

Graph  4:  Euro  area  net  lending/borrowing  by 
sector  

Source: AMECO14 

Source: Eurostat  

The  low-inflation,  low-interest-rate  environment  poses  a  number  of  challenges.  Monetary 
authorities  both  in  the  euro  area  and  other  major  world  regions  have  taken  measures  to  counter  the 
incipient slowdown in output and the downward shift in inflation expectations in 2019, thus reversing 
the  previously  communicated  path  towards  tighter  conditions.  Bond  yields  have  shifted  to  negative 
levels, with falling returns especially on the long end of yield curves, and narrowing interest rate spreads 
on riskier bonds. Core inflation remains below the target of monetary authorities; the euro area output 
gap  is  estimated  to  be  edging  down  after  turning  positive  in  2017  following  a  protracted  period  of 
subdued  demand  and  negative  output  gaps  (Graph  3).  Going  forward,  while  reduced  nominal  growth 
makes  deleveraging  less  easy,  the  low  interest  rate  environment  would  reduce  the  cost  of  debt. 
However,  long-term  interest  rates  at  historically  very  low  levels  bring  also  a  number  of  potential 
challenges:  incentives  to  circumvent  regulatory  constraints  and  search  for  yield  in  risky  investment; 
underestimation  of  credit  risk  and  weakened  incentives  to  reduce  high  debt  induced  by  compressed 
spreads; and reduced profitability in regulated financial institutions, notably banking and insurance, in 
view of flat yield curves.15  

Rebalancing  within  the  euro  area  is  still  incomplete  and  competitiveness  developments  are 
becoming less supportive of intra euro area rebalancing. While most large current account deficits 
have corrected, large surpluses persist in a number of euro area countries. Countries with a past of large 
deficits remain characterised by large negative net international investment positions, and are generally 
coupled with large stocks of private or government debt that represent vulnerabilities. After the financial 
crisis, an adjustment process in relative costs and prices has been supportive of rebalancing. Unit labour 
costs have been growing at a faster pace in net-creditor countries compared to net-debtor countries, thus 
reversing the trend predating the financial crisis. This trend persists, but with differences that appear less 

14 Note that while the difference between GDP and domestic demand should equal the trade balance by definition, 
data are not fully aligned due to intra-euro area reporting discrepancies (see footnote 12). 
15 E.g., ECB, Financial Stability Review, May 2018, May 2019. 

9 

-4-3-2-101238500900095001000010500110001150007080910111213141516171819f%Billion euro(2015 prices)EA trade balanceminEA core inflation (%, rhs)EA output gap (% GDP, rhs)EA aggregate demandEA Output (GDP)-6-4-202460304050607080910111213141516171819f% of GDPHouseholdsGovernmentsCorporationsTotal economy 
 
 
 
 
 
                                                      
marked across relevant country groups (Graph 5).16 The tightening of labour markets also in net-debtor 
countries imply accelerating wage growth and with cost competitiveness further dampened by reduced 
productivity  growth  associated  with  a  slowdown  or  decline  in  capital-labour  ratios.  Competitiveness 
levels,  as  measured  by  GDP  deflators  expressed  in  purchasing  power  parities  with  respect  to  that  of 
competitors (Graph 6), exhibit a loose relation to external balances and rebalancing needs.17 The share 
of tradable goods on total value added has matched the adjustment in relative prices: its share has been 
growing  after  the  crisis  in  countries  formerly  with  high  deficits,  but  this  process  is  decelerating  or 
reversing.18 

In the current economic context, rebalancing in the euro area of both current account deficits and 
surpluses is pressing and would be beneficial for all Member States. In net-debtor countries, running 
down large stocks of foreign and domestic debt requires maintaining prudent current account balances 
and ensuring an appropriate pace of debt reduction while pursuing the objective of raising the growth 
potential.  Enhancing  productivity  prospects,  notably  via  targeted  investment  and  reforms  supporting 
total factor productivity is needed at the overall euro area level but particularly in net-debtor countries as 
this is key both for the sustainability of debt stocks and to make relative competitiveness developments 
more  supportive  of  rebalancing.  Conversely,  in  net-creditor  countries  a  further  increase  in  public  and 
private  investment  would  enhance  potential  growth,  make  growth  prospects  in  these  countries  less 
dependent upon foreign demand and support domestic demand, thus supporting the rebalancing of the 
euro  area.  In  the  current  economic  context,  fiscal  impulses  in  countries  with  large  surpluses  and  a 
favourable fiscal position would also help overcoming the low-inflation, low-interest-rate environment 
and  support  nominal  growth,  thereby  favouring  deleveraging  and  the  rebalancing  of  net-debtor 
positions.   

Graph  5:  Unit  labour  cost  growth  across  the 
euro area 

Graph  6:  Real  effective  exchange  rates  levels, 
based on GDP deflators  

16 In 2019, the French tax credit for employment and competitiveness ("CICE") was replaced by a permanent cut 
in employers’ social security contributions in the first quarter, implying a considerable drop in French labour costs 
observed in the change in the unit labour costs for the group of countries with intermediate NIIP in Graph 5. 
17 Graph 6 presents countries ordered according to current account.  
18  The  evidence  is  based  on  the  share  of  agriculture,  manufacturing,  and  trade,  transport  and  communication 
services  on  total  value  added.  The  indicator  does  not  take  into  account  that  services  are  becoming  increasingly 
tradable and are accounting for a growing share of total value added. 

10 

 
 
 
 
                                                      
Source: AMECO 
Note:  Countries  with  NIIP  >  +35%  of  GDP  are  DE, 
LU,  NL,  BE,  MT.  Countries  with  NIIP  between  35% 
and  -35%  of  GDP  are  FI,  EE,  IT,  LT,  FR,  SI,  AT. 
Remaining  countries  are  in  the  NIIP  <  -35%  of  GDP 
group.  The  country  split  is  based  on  NIIP  average 
values in the 2016-2018 period. Net-creditor countries 
recorded  an  average  current  account  surplus  over  the 
same period. Figures concern GDP-weighted averages 
for the three groups of countries. 

Source: Commission  services calculations on Eurostat 
and IMF data.  
Note:  The  REER  in  levels  is  computed  based  on  the 
ratio of GDP deflator on that of competitors, expressed 
in  purchasing  power  parities  (and  assuming  US=100). 
Country  weights  are  the  same  as  those  used  to 
construct REER indexes (42 competitors’ group).  

3. 

IMBALANCES, RISKS AND ADJUSTMENT: MAIN DEVELOPMENTS ACROSS COUNTRIES 

The AMR builds on an economic reading of the MIP scoreboard of indicators, which provides a 
filtering  device  for  detecting  prima-facie  evidence  of  possible  risks  and  vulnerabilities.  The 
scoreboard includes 14 indicators  with indicative thresholds in the following areas: external positions, 
competitiveness, private debt, housing markets, the banking sector, and employment. It relies on actual 
data  of  good  statistical  quality  to  ensure  data  stability  and  cross-country  consistency.  Hence,  the 
scoreboard  used  for  this  report  reflects  data  up  to  2018.  In  accordance  with  the  MIP  regulation 
(Regulation  (EU)  No  1176/2011),  scoreboard  values  are  not  read  mechanically  in  the  assessments 
included  in  the  AMR,  but  are  instead  subject  to  an  economic  reading  that  enables  a  deeper 
understanding of the overall economic context and taking into account country-specific considerations.19 
A set of auxiliary indicators complements the reading of the scoreboard. More recent data and additional 
information,  insights  from  assessment  frameworks,  as  well  as  findings  in  existing  IDRs  and  relevant 
analyses,  as  well  as  the  Commission  autumn  2019  forecast,  are  also  taken  into  consideration  in  the 
AMR assessment. 

Scoreboard  data  point  to  the  emergence  of  possible  issues  relating  to  cost  competitiveness  and 
house  price  dynamics,  on  top  of  persistent  high  debt  levels  that  are  only  gradually  adjusting. 
Values  in  excess  of  threshold  in  the  AMR  scoreboard  continue  to  be  recorded  with  the  highest 

19 On the rationale underlying the construction of the AMR scoreboard and its reading see European Commission 
(2016), "The Macroeconomic Imbalance Procedure. Rationale, Process, Application: A Compendium", European 
Economy, Institutional Paper 039, November 2016. 

11 

-3-2-101234560304050607080910111213141516171819f% change  Countries NIIP < -35% of GDPCountries NIIP > +35% of GDPCountries -35% < NIIP < +35%708090100110120130140CYFISKELPTFRLVLTBEESEEITATLUDESIMTNLIEREER in levels 2008201220172018 
 
 
 
 
 
 
 
 
                                                      
frequency  in  the  case  of  government  debt,  net  international  investment  positions,  and  private  debt 
(Graph 7).20 The economic expansion and improved current account and fiscal balance positions have 
nevertheless helped to reduce net foreign liabilities and government debt as shares of GDP, implying a 
reduction in the number of Member States crossing the related scoreboard thresholds. Conversely, the 
number  of  cases  beyond  the  threshold  is  unchanged  for  private  debt,  in  light  of  loosened  net  saving 
positions  offsetting  the  impact  of  growth  on  debt-to-GDP  ratios.  The  economic  expansion  in  some 
countries manifests itself also with fast-growing labour costs and house prices. The number of Member 
States  with  unit  labour  cost  growth  above  the  threshold  more  than  doubled  compared  with  previous 
scoreboard vintages, and more countries surpass the thresholds for the real effective exchange rate due 
to  appreciations.  House  price  dynamism  of  recent  years  is  reflected  in  the  marginal  increase  of  the 
number  of  countries  exceeding  the  relevant  threshold  recently.  The  cases  of  current  account  balances 
beyond the thresholds continue to mostly reflect surpluses. The continued job-rich economic expansion 
is reflected in fewer EU countries with high unemployment and in fewer concerns with youth and long-
term unemployment and activity rates. 

Graph 7: Number of countries recording scoreboard variables beyond threshold 

Source: Eurostat. 
Note:  the  number  of  countries  recording  scoreboard  variables  beyond  threshold  is  based  on  the  vintage  of  the 
scoreboard published with the respective annual AMR. Possible ex-post data revisions may imply a difference in 
the  number of  values beyond threshold computed using the  latest figures  for the scoreboard variables compared 
with the number reported in the graph above. 

Current account positions in most EU Member States slightly moved downwards in 2018. Slowing 
trade, resilient domestic demand, and rising oil prices detracted from the current account balances of a 
majority of Member States. In most cases, current account balances remain above the levels that could 
be  expected  on  the  basis  of  country-specific  economic  fundamentals  ("current  account  norms")  and 

20 The detailed scoreboard indicators, together with the respective indicative thresholds, are displayed in Table 1.1 
in annex; auxiliary indicators are displayed in Table 2.1.  As explained in the note to Graph 9, the reading of the 
evolution of the scoreboard data is based on the data available at the time of each AMR. The cut-off date for data 
for this AMR was 25 October 2019. 

12 

515511461131712008451533310012169112161321460121572310612618701214512000246810121416182015201620172018 
 
 
 
  
 
                                                      
above what is needed to correct large foreign liability positions (Graph 8).21 While the current account 
deteriorations  that  took  place  between  2017  and  2018  are  often  beyond  what  was  implied  only  by 
cyclical  factors  (Graph  9),  cyclical-adjusted  current  accounts  generally  suggest  that  external  positions 
are stronger than the headline figures as output gaps are positive almost everywhere.22  

  Only two Member States record current account deficits beyond the MIP scoreboard lower 
threshold. Cyprus records the largest current account deficit in the EU according to 3-year average 
scoreboard data, which improved in 2018, although not to level that would ensure improvements in 
the NIIP at an appropriate pace.23 The current account deficit of the United Kingdom is also beyond 
the  scoreboard  threshold.  Romania  recorded  a  visible  current  account  deficit  in  2018  alone, 
at -4.6% of GDP, in a marked deterioration from earlier years; such a reading is below norm and a 
good part of the deterioration is not warranted by the economic cycle. 

  Current  accounts  moved  downward  in  a  number  of  large  net-debtor  countries.  Current 
account  outcomes  narrowed  in  Greece,  Portugal,  and  Spain,  in  2018.  Greece's  current  account 
deficit  is  beyond  what  can  be  explained  by  fundamentals  and  insufficient  to  correct  the  very 
negative NIIP towards prudent levels over a 10-year horizon.24 In Portugal, the latest readings are 
below  the  level  that  would  ensure  a  correction  of  the  negative  NIIP  at  an  appropriate  pace.  In 
contrast,  current  account  developments  in  Spain  remain  consistent  with  improving  the  NIIP  at 
appropriate  pace.  Ireland's  current  account  improved  sharply  in  2018,  largely  reflecting  cross-
border transactions by multinational corporations.  

  Four  EU  countries  continued  recording  current  account  surpluses  that  exceeded  the  MIP 
scoreboard  upper  threshold.  That  has  been  the  case  for  Denmark,  Germany,  the  Netherlands 
since  the  beginning  of  this  decade,  and  for  Malta  more  recently.  In  2018,  surpluses  declined  in 
Germany by 0.7 of a percentage point of GDP and marginally less in  Denmark, while they were 
largely  unchanged in  Malta  and  the  Netherlands.  In  the  latter  two  countries,  the  dynamics  of the 
current account are also driven by cross-border transactions linked to the activities of multinational 
corporations  and  of  internationally-oriented  service  sectors  that  affect  both  the  trade  and  income 
balances. 

  Large  surpluses  keep  contributing  to  large  positive  NIIPs.  Except  for  Malta,  current  account 
surpluses above scoreboard threshold are also above levels justified by fundamentals (Graph 8). In 

21  Current  accounts  in  line  with  fundamentals  ("current  account  norms")  are  derived  from  reduced-form 
the  saving-investment  balance,  including  fundamental 
regressions  capturing  the  main  determinants  of 
determinants, policy factors and global financial conditions. See L. Coutinho et al. (2018), "Methodologies for the 
assessment of current account benchmarks", European Economy, Discussion Paper 86/2018, for the description of 
the  methodology  for  the  computation  of  the  fundamentals-based  current  account  used  in  this  AMR;  the 
methodology  is  akin  to  S.  Phillips  et  al.  (2013), "The  External  Balance  Assessment  (EBA)  Methodology",  IMF 
Working Paper, 13/272. 
22  Cyclically-adjusted  current  account  balances  take  into  account  the  impact  of  the  cycle  by  adjusting  for  the 
domestic  output  gap  and  that  in  trading  partners,  see  M.  Salto  and  A.  Turrini  (2010),  "Comparing  alternative 
methodologies for real exchange rate assessment", European Economy, Discussion Paper 427/2010. 
23  Data  for  Cyprus  current  account  were  revised  since  last  year's  AMR  and  now  show  a  current  account  deficit 
within the lower threshold in the three years to 2017, which was not the case last year. 
24  For  the  methodologies  for  country-specific  NIIP  prudential  thresholds  see  footnote  25.  The  gap  between  the 
actual current accounts and those  required to stabilise  the  NIIP crucially depends on the time  frame considered. 
For  instance,  the  current  account  required  to  stabilise  the  NIIP  of  Greece  above  the  -35%  of  GDP  scoreboard 
threshold  within  a  20-year  horizon  would  be  a  surplus  close  to  1%  of  GDP;  see  European  Commission  (2019), 
"Enhanced Surveillance Report: Greece, November 2019", European Economy, Institutional Paper 116, November 
2019. 

13 

 
 
 
                                                      
all  cases,  surpluses  above  scoreboard  threshold  are  also  above  levels  that  would  permit  a 
stabilisation of the already largely NIIP at the current level over a 10-year horizon. 

Graph 8: Current account balances and benchmarks in 2018 

Source: Eurostat (BPM6 data) and Commission services calculations. 
Note: Countries are ranked by current account balance in 2018. Cyclically-adjusted current account balances: see 
footnote 22. Current account norms: see footnote 21. The NIIP-stabilising current account benchmark is defined 
as the current account required to stabilise  the  NIIP at the current level over the next 10 years or, if the  current 
NIIP  is  below  its  country-specific  prudential  threshold,  is  the  current  account  required  to  reach  that  NIIP 
prudential threshold over the next 10 years (see footnote 25).  

Graph 9: Evolution of current account balances  

Source: Eurostat and Commission services calculations. 
Note: Countries are ranked in increasing order of the variation in the current account in terms of GDP between 
2007  and  2018.  The  variation  owed  to  the  cycle  is  computed  as  the  variation  of  the  current  account  that  is  not 
accounted for by the variation of the cyclically-adjusted current account balance. 

14 

-8-404812CYELSKFIBELVFRLTPTESEEATITLUSIDEIENLMTROUKPLHUCZSEHRBGDKEuro areaNon-euro area% of GDPCurrent account (CA), BoPCyclically-adjusted CACA normNIIP-stabilising CA-20-100102030-8-404812SEFILUBEATUKFRDESKITNLCZPLDKHUCYROSIHRPTESELMTLTEEIELVBGpps. of GDP% of GDP201720182017 + variation in 2018 owed to the cycleChange 2007-2018 (pps of GDP) (rhs) 
 
 
 
 
 
  
 
In  2018,  NIIPs  improved  at  faster  pace  in  most  Member  States,  but  large  stocks  of  negative 
external  liabilities  persist  in  a  number  of  them.  NIIP  improvements  continued  in  2018  thanks  to 
prudent  current  account  positions,  GDP  growth  and  large  positive  valuation  effects  in  a  number  of 
countries (Graphs 10 and 11). Yet NIIPs remain largely negative in a number of EU countries. In 2018, 
12 Member States recorded NIIPs worse than the scoreboard threshold of -35% of GDP, one fewer than 
in  2017.  In  countries  with  largely  negative  NIIPs,  values  are  below  what  could  be  justified  by 
fundamentals ("NIIP norms"), and in some cases below the prudential thresholds.25 In some countries, 
the  stock  of  foreign  liabilities  is  large  also  when  computed  net  of  FDI  and  other  non-defaultable 
instruments (NENDI).26  

  Some euro area countries continue to have largely negative NIIPs below -100% of GDP, such as 
Cyprus, Greece, Ireland, and Portugal. In these countries, NIIPs are well below benchmarks, both 
NIIP norms and prudential thresholds. In Cyprus and Ireland, NIIP levels reflect also the relevance 
of  balance  sheets  of  multinational  corporations  and  cross-border  corporate  financial  relations. 
These four countries, together with Spain, show a strong incidence of debt liabilities in their NIIPs 
as indicated by the very negative NIIP excluding non-defaultable instruments (NENDI). In Greece, 
the  large  external  public  debt,  often  at  highly  concessional  terms,  accounts  for  the  bulk  of  the 
NIIP.27 A large share of the NIIP of Cyprus is linked to the balance sheet positions of non-financial, 
ship-owning special-purpose vehicles. 

  In countries with more moderately negative NIIPs but still worse than -35% of GDP, the NIIPs 
also tend to be below what is expected from country-specific fundamentals. That was the case for 
Bulgaria, Croatia, Hungary, Latvia, Poland, Romania, and Slovakia.  In a few cases, they are also 
worse than the prudential thresholds. However, as many of these central and eastern European and 
Baltic  countries  are  large  recipients  of  FDI,  the  NIIP  improves  considerably  if  computed  net  of 
non-defaultable instruments (NENDI).28 Other EU countries record negative NIIPs above -35% of 
GDP but below the respective norms (Czechia, Estonia, Lithuania, and Slovenia), also in this case 
largely reflecting inward FDI stocks. Within this group, France stands out for the large relevance of 
defaultable instruments for its negative NIIP. 

25  NIIP  in  line  with  fundamentals  ("NIIP  norms")  are  obtained  as  the  cumulation  over  time  of  current  account 
norms (see also footnote 21). NIIP prudential thresholds are determined from the maximisation of the signal power 
in  predicting  a  balance  of  payment  crisis,  taking  into  account  country-specific  information  summarised  by  per-
capita income. For the methodology for the computation of NIIP stocks in line with fundamentals see A. Turrini 
and S. Zeugner (2019), "Benchmarks for Net International Investment Positions", European Economy, Discussion 
Paper 097/2019. 
26  NENDI  is  a  subset  of  the  NIIP  that  abstracts  from  its  pure  equity-related  components,  i.e.  foreign  direct 
investment (FDI) equity and equity shares, and from intracompany cross-border FDI debt, and represents the NIIP 
excluding instruments that cannot be  subject to default.  See  also  European  Commission, "Envisaged revision of 
selected auxiliary indicators of the MIP scoreboard", Technical note; https://ec.europa.eu/info/business-economy-
euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-
correction/macroeconomic-imbalance-procedure/scoreboard_en.  
27 Looking at the data by institutional sectors, government NIIP accounts for the whole of the very negative NIIP 
in Greece – as public debt is largely owned by foreigners, crucially including official lenders – while the rest of the 
economy,  i.e.,  households,  non-financial  and  financial  corporations,  including  Monetary  Financial  Institutions, 
posts  a  positive  NIIP.  In  Cyprus,  Portugal,  and  Spain,  the  government's  NIIP  accounts  for  a  large  share  of  the 
economy's NIIP but the rest of the economy still shows a clearly negative NIIP. 
28 Current account developments are  consistent  with  stability of  the external position for  these countries, except 
Romania, where the expected further current account deterioration is likely to lead also to a worsening of the NIIP.  

15 

 
 
 
                                                      
  Most of the large positive NIIPs edged up further in 2018. Germany, Luxembourg, Malta, and the 
Netherlands record positive NIIPs at or over 60% of GDP, and Denmark at close to 50% of GDP.29 
That has reflected the persistence of large current account surpluses for a number of years, which 
has  led  to  the  accumulation  of  a  large  net  asset  position  vis-à-vis  the  rest  of  the  world.  Instead, 
Belgium  recorded a  fall  in  its  very  positive  NIIP  on  the  back  of  adverse  valuation  effects.  In  all 
those cases, NIIPs readings are visibly above the respective norms, i.e. well beyond what could be 
justified by or expected on the basis of country-specific fundamentals. 

Graph 10: Net international investment positions (NIIPs) and benchmarks in 2018 

Source: Eurostat (BPM6, ESA10), Commission services calculations 
Note:  values  for  the  NENDI  for  Ireland,  Luxembourg,  and  Malta  are  off-scale.  Countries  are  presented  in 
decreasing order of the NIIP-to-GDP ratio in 2018. NENDI is the NIIP excluding non-defaultable instruments. For 
the concepts of NIIP norm and NIIP prudential threshold, see footnote 25.  

29 The relevance of the NENDI varies considerably across this group of countries, reflecting also the relevance of 
their financial centres, like in Luxembourg and Malta, or the external debt liabilities of banks and multinationals' 
headquarters as in the Netherlands. 

16 

-180-150-120-90-60-3003060NLMTDELUDKBESEATFIITUKFRSICZEELTBGROLVHUPLHRSKESPTCYELIE% of GDPNIIP 2016NIIP 2017NIIP 2018NIIP norm 2018Prudential NIIP threshold 2018NENDI 2018 
 
 
 
 
                                                      
Graph 11: Net international investment positions (NIIPs) dynamics in 2018 

Source: Eurostat, Commission services calculations 
Note:  Countries  are  presented  in  increasing  order  of  the  variation  of  the  NIIP-to-GDP  ratio  in  2018.  The  graph 
presents a breakdown of the year-on-year evolution of the NIIP-to-GDP ratio into five components: the financial 
account  balance,  which  should  be  equal  to  the  sum  of  the  current  and  capital  account  balances;  potential  and 
cyclical real GDP growth; inflation; and, valuation changes. The cyclical component of GDP growth is computed 
as the difference between actual and potential growth.  

Unit labour costs (ULCs) are growing at an accelerated pace in a number of EU Member States. 
In 2018, the scoreboard shows ULC growth above threshold in 8 countries, twice compared to previous 
years.  The  ULC  acceleration  started  around  2013,  first  in  the  Baltic  economies,  somewhat  later  in  a 
number  of  central  and  eastern  European  countries,  with  some  signs  of  acceleration  becoming  visible 
also across the euro area. Forecast data for 2019 suggest some moderation of ULC growth in countries 
where  cost  competitiveness  losses  in  recent  years  were  more  substantial,  but  there  also  cases  where 
ULC growth seems to edging further up (Graph 12).  

  ULC accelerations have been observed in a growing number of Member States. ULC growth 
has  been  especially  strong  in  some  central  and  eastern  European  and  Baltic  countries,  notably 
Romania  and  also  Bulgaria,  Czechia,  Estonia,  Hungary,  Latvia,  Lithuania,  and  Slovakia.  In  all 
those countries the scoreboard shows ULC growth above threshold. While for most of them, some 
deceleration of ULC is expected in 2019, ULC are expected to accelerate further in Hungary and 
Slovakia in the current year. ULC growth remained relatively moderate, albeit higher than in earlier 
years, in euro area net-debtor countries, notably Cyprus, Greece, and Spain. Portugal recorded ULC 
growth above the euro area average. ULC eventually edged up somewhat also in large net-creditors 
countries.  Germany  recorded  the  strongest  acceleration  of  ULC  among  the  large  euro  area 
economies.  

  Strong  ULC  growth  is  largely  the  result  of  resuming  wage  growth  amid  labour  market 
tightening. In 2018, nominal wage growth is the most important factor accounting for ULC growth 
(Graph  13).  Since  the  economic  recovery,  employment  growth  and  falling  unemployment  rates 
have  been  followed  by  accelerating  wage  growth,  reflecting  Phillips'  curve  dynamics.  However, 
since  the  recovery,  real  wage  growth  was  below  labour  productivity  growth  until  2017,  with  a 

17 

-16-12-8-40481216BEELFIUKMTSKFRATCZIEHUITROPTEEESSIPLSECYDELTLVHRDKBGLUNLpps. of GDPFinancial account balanceValuation effectsInflationPotential real GDPCyclical real GDPTotal change in NIIP 
 
 
 
 
 
 
reversal taking  place  only  since  2018.  Across countries,  ULC  growth tends  to  be  stronger  where 
unemployment  is  the  lowest,  with  skill  shortages,  labour  supply  bottlenecks,  and  catching  up 
dynamics  playing  also  a  role  especially  in  central  and  eastern  Europe.30  The  timings  of  ULC 
accelerations  also  reflects  those  of  labour  market  improvements,  with  countries  that  experienced 
earlier accelerations in ULCs being those that were less concerned by the recessions linked to the 
2011 euro area debt crisis and where unemployment started falling earlier.  

  Sluggish  labour  productivity  plays  a  growing  role  in  the  ULC  accelerations.  Falling  labour 
productivity  growth  is  behind  a  considerable  fraction  of  the  acceleration  of  ULCs  between  2017 
and 2018. Labour productivity growth resumed in most EU countries with the economic recovery 
after  the  marked  slowdown  in  the  years  around  the  deep  of  the  financial  crisis  (Graph  14).  The 
recovery in labour productivity was mainly associated with total factor productivity (TFP) growth, 
while capital deepening has contributed less to labour productivity growth compared with the pre-
crisis  period.  The  latter  reflects  average  capital  per  worker  growing  at  low  pace  or  falling  on 
account of  the strong employment  growth as well as of  weak investment.  In recent years, labour 
productivity  has  been  growing  at rates  below those recorded  in the pre-crisis  period,  due  both  to 
more moderate TFP growth and weaker capital deepening.  

  The pattern of ULC growth is increasingly delinked from rebalancing needs. In 2018, ULCs 
edged up across euro area countries with only little differentiation between net-creditors and net-
debtor countries. That was in contrast with post-crisis years, where ULCs exhibited a more marked 
acceleration  in  net-creditors  countries.  As  labour  markets  gradually  started  tightening  also  in 
countries  that  underwent  current  account  reversals,  labour  costs  started  rising  also  in  these 
countries, and the gap vis-à-vis net-creditor countries started narrowing (see also section 2). Going 
forward, as it is in net-debtor countries where room for further labour market tightening is larger, 
competitiveness dynamics could become increasingly less supportive of rebalancing because both 
relatively  stronger  wage  growth  and  more  contained  productivity  growth  on  account  of  a 
weakening contribution from capital deepening. 

30 E.g., G. Brunello and P. Wruuck, "Skill mismatch in Europe: A survey of the literature", IZA Discussion Paper 
Series  12346,  2019;  A.  Kiss  and  A.  Vandeplas,  "Measuring  skills  mismatch.  DG  EMPL  Analytical  webnote 
7/2015, European Commission, 2015; European Commission (2018), Labour Market and Wage Developments in 
Europe; Annual Reviews 2018 and 2019. 

18 

 
 
 
 
                                                      
Graph 12: Unit labour cost growth in recent years 

Source: AMECO; 2019 data come from the European Commission autumn 2019 economic forecast.  
Note: Countries are presented in increasing order of ULC growth in 2018. 

Graph 13: Growth in unit labour cost breakdown, 2018 

Source: AMECO and Commission services calculations  
Note:  Countries  are  presented  in  increasing  order  of  ULC  growth  in  2018.  The  decomposition  is  based  on  the 
standard  breakdown  of  unit  labour  cost  growth  into  nominal  hourly  compensation  and  labour  productivity,  the 
latter  being  further  broken  down  into  the  contribution  of  hours  worked,  total  factor  productivity  and  capital 
accumulation using a standard growth accounting framework. 

19 

-8-404812IECYMTFRELESFINLBEATITPTDESISKLULTLVEEHRDKUKSEPLHUBGCZROEuro areaNon euro areaAverage annual % change2014-2016201720182019f-8-40481216IECYMTFRELESFINLBEATITPTDESISKLULTLVEEHRDKUKSEPLHUBGCZROEuro areaNon euro area% /p.p changeCapital deepeningTFPHours workedCompensation per hourNominal ULC growth 
 
 
  
 
 
 
Graph 14: Productivity growth breakdown, 2002-2018 

Source: AMECO 
Note:  Labour  productivity  measured  on  the  basis  of  GDP  per  person  employed.  Data  for  productivity  and  its 
subcomponents (total factor productivity (TFP) and capital deepening) refer to three periods as follows from left to 
right: 2002-2007 (light blue bars and marker), 2007-2012 (medium blue) and 2012-2018 (dark blue). 

Cost competitiveness losses started being reflected also into real exchange rate (REER) measures, 
partly reflecting nominal appreciations. Until recently, ULC growth was only marginally reflected in 
appreciating ULC-based REERs, the main reason being the relatively strong growth in cost and prices in 
non-EU partner countries and the euro depreciation that took place around the turn of the decade and in 
2015.  More  recently,  ULC-based  REERs  started  exhibiting  a  deterioration,  partly  captured  also  by 
REER  measures  built  from  different  deflators  (GDP  or  consumption)  because  of  the  sustained  ULC 
growth and an appreciating euro between 2016 and 2018. This has led in 2018 to a higher number of 
Member States for which the scoreboard indicates REER growth beyond the threshold. Currently, only 
one Member State is below the lower threshold on account of depreciation (the United Kingdom) while 
5 other exceeded the threshold for appreciations (Belgium, Czechia, Estonia, Germany, and Lithuania). 

  ULC-based  REERs  are  growing  in  a  majority  of  Member  States  and  accelerating  as 
compared  with  recent  years.  A  number  of  central  and  eastern  European  countries  exhibit  the 
strongest  growth  since  2016,  notably  those  outside  the  euro  area,  but  considerable  growth  is 
observed  also  in  a  number  of  euro  area  countries,  especially  the  Baltics  but  also  Germany, 
Luxembourg, Portugal, and Slovakia (Graph 15). 

  Nominal  appreciations,  notably  of  the  euro,  accounted  for  part  of  the  real  appreciations 
recorded  between 2016  and  2018.  Such tendency  has  however stopped and slightly  reversed in 
2019.  Outside  the  euro  area,  Bulgaria  and  Czechia  had  the  strongest  appreciations  of  nominal 
effective  exchange  rates  (NEER)  between  2016  and  2018,  while  depreciations  took  place  in 
Sweden and the United Kingdom.  

  Some  price-cost  margin  compression  may  have  been  taking  place,  as  ULC-based  REER 
appreciated  generally  more  than  REERs  based  on  the  GDP  of  HICP  deflator.  Substantial  gaps 
between REERs based on ULC and GDP deflators were observed especially in Bulgaria, Czechia, 

20 

-4-202468ELITPTNLESCYATBELUFIDEFRSILTSKEELVMTIEUKSEDKHUCZHRBGPLROEuro areaNon euro areaAverage annual % changeTFPCapital DeepeningProductivity 
 
 
 
 
 
Latvia, Lithuania, Romania, and Slovakia.31 Despite muted  inflation dynamics, owing to nominal 
appreciations,  most  EU  countries  have  recorded  competitiveness  losses  as  measured  by  the 
HICP-based REER.  

  Despite those recent losses, in most EU countries, the current competitiveness position remains 
more favourable than before the crisis as the HICP-based REER level often lies below the one 
recorded at recent peaks. Yet in some countries, notably Austria, Belgium, Estonia and Lithuania, 
current HICP-based REER figures are above recent peaks, reflecting protracted appreciations. 

  Real depreciations tend to coincide with a reduction of the relative price of non-tradables, and an 
increased  share  of  tradables  in  the  economy,  improving  the  potential  for  export-led  growth 
dynamics. The data often confirm that pattern, which nevertheless appears to be slowing down or 
even reverting in a number of EU countries, notably the Baltics (Graph 16). 

Graph 15: Nominal and real effective exchange rates (NEER and REER) dynamics 

Source: AMECO 
Note: Countries are presented in increasing order of the average annual variation of the Real Effective Exchange 
Rate  (REER)  based  on  ULC  growth  over  the  years  2016  to  2018.  The  REERs  based  on  ULC  and  on  the  GDP 
deflator  and  the  Nominal  Effective  Exchange  Rate  (NEER)  are  computed  vis-à-vis  37  trading  partners,  the  one 
based on the harmonised index of consumer prices (HICP) is computed vis- à -vis 42 trading partners. 

31  While  margin  compression  prevents  cost  competitiveness  to  affect  the  terms  of  trade,  thereby  containing  the 
impact  on  trade  flows  in  industries  characterised  by  product  differentiation  and  pricing-to-market,  persistent 
reduced profitability would over time imply a shrinking tradable sector. 

21 

8090100110120130-6-4-202468FIIECYESELITFRNLATMTBESIPTDELUSKLVEELTUKSEHRPLDKHUBGCZROEuro areaNon euro areaIndex level,  2018, peak 2009-2017 = 100NEER (2016-18)REER ULC (2016-18)REER GDP deflator (2016-18)REER HICP (level, 2018, peak 2009 - 2017 = 100) (rhs)Average annual % change 
 
 
 
  
 
 
 
                                                      
Graph 16: Share of tradables in the economy 

Source: AMECO 
Note: the share of tradables in the economy (agriculture, manufacturing, and trade, transport and communication 
services) is computed as the share of value added in tradables in the economy's total value added (%).  

Export  market  share  grew  in  most  Member  States  in  2018.  The  cumulated  export  market  share 
changes over 5 years reported in the scoreboard show positive values in most EU countries. Only in one 
Member State (Sweden) losses beyond the scoreboard threshold were recorded. Recent data on annual 
basis point to generally positive export market share growth rates (Graph 17). 

  Recent market share gains for EU Member States are still partly linked to relatively strong export 
demand from areas with close trade links with EU countries. The recent REER depreciations may 
have also played a role. Market shares for EU countries fell over the post-crisis years, and started 
improving with the rebound in intra-EU export demand. More recently, the slowing down of trade 
in  a  number  of  emerging  economies  compared  with  intra-EU  trade  is  likely  to  account  for  the 
growth in export market share in EU countries in the most recent years. This is confirmed by more 
limited export market share gains measured against OECD countries (Table 2.1 in annex). Because 
of  appreciating  REERs,  export  market  share  gains  appear  more  moderate  when  measured  in  real 
terms.  

  In 2018, central and eastern European Member States recorded the strongest export market 
share  gains  but  often  with  considerable  decelerations.  Some  net-creditor  countries  including 
Germany  are  among  those  recording  losses.  Among  net-debtor  countries,  export  market  shares 
have  declined  in  Spain  and  Bulgaria,  and  are  decelerating  in  Portugal,  while  improvements  are 
recorded in Greece (with the strongest gain recorded in 2018), Romania, and Cyprus.  

22 

 
 
 
 
 
Graph 17: Changes in export market shares 

Source: Eurostat, Commission services calculations. 
Note: Countries are presented in increasing order of the annual variation of the nominal export market shares in 
2018. Nominal export market shares are calculated by dividing the exports of a country at current prices by world 
exports  also  at  current  prices.  Real  export  market  shares  growth  is  calculated  by  subtracting  the  growth  rate  of 
world exports in volumes from the country’s growth rate in volumes. 

Private  sector  debt  ratios  remain  elevated  in  a  number  of  Member  States  according  to  available 
benchmarks.  

  Twelve Member States exceeded the scoreboard threshold for private debt in 2018, the same 
number as in 2016 and 2017. Private debt ratios exceed 200% of GDP in Luxembourg, Cyprus, 
the  Netherlands,  and  Ireland.  Debt  figures  in  those  countries  are  influenced  by  intra-company 
cross-border transactions notably linked with the activity of multinational corporations and special 
purpose vehicles. Private debt-GDP ratios in Denmark and Sweden are at or around 200% of GDP; 
in Belgium, France, Portugal, and the United Kingdom, they are close to or above 150% of GDP. 

  In  Cyprus,  France,  the  Netherlands,  Portugal,  Spain,  and  Sweden  both  households  and  non-
financial  corporations  (NFCs)  contribute  to  the  large  private  sector  debt  ratios  (Graphs  18  and 
19). In Ireland and Luxembourg, corporations' high indebtedness drive the large stocks of private 
debt; in Denmark, Finland, and the United Kingdom it is rather households' debt. 

  Differences in the stock of private debt across countries are largely explained by differences in 
fundamental  factors  justifying  the  accumulation  of  debt,  including  prospects  for  growth  and 
investment,  and  financial  development.  An  assessment  of  debt  levels  should  thereby  take  into 
account those factors, as well as other elements affecting risks posed by high debt from a forward-
looking  perspective.32  On  the  basis  of  2018  data,  all  countries  with  private  debt  above  the 

32 Those factors are taken into account in country-specific benchmarks developed by the European Commission in 
cooperation  with  the  EPC  LIME  Working  Group  (European  Commission,  "Benchmarks  for  the  assessment  of 
private  debt",  Note  for  the  Economic  Policy  Committee,  ARES  (2017)  4970814)  and  subsequent  updates. 
Fundamentals-based benchmarks allow assessing private debt against values that can be explained on the basis of 
economic  fundamentals, and  are derived from regressions  capturing the  main determinants of credit growth and 
taking into account a given initial stock of debt. Prudential thresholds represent the debt level beyond which the 
probability of a banking crisis is relatively high; those levels are based on the maximisation of the signal power in 

23 

-6-4-20246810SEUKDEESBEITHUDKFRBGLUMTCYHRNLCZFIPTEELVATSKPLROSILTIEEL% change2017 (nominal)2017 (real)2018 (nominal)2018 (real)2019 f (real) 
 
 
 
 
 
                                                      
 
scoreboard  threshold  are  also  above  their  country-specific  prudential  and  fundamentals-based 
benchmarks.  

Graph 18: Non-financial corporations debt 

Sources: Eurostat non-consolidated quarterly sectoral accounts, Commission services calculations. 
Notes:  Countries are presented in decreasing order of the  NFCs debt-to-GDP ratio in 2018. Numbers below the 
country codes indicate the year when that debt ratio peaked.  

Graph 19: Households debt 

Sources: Eurostat non-consolidated quarterly sectoral accounts, Commission services calculations. 
Notes: Countries are presented in decreasing order of the households debt-to-GDP ratio in 2018. Numbers below 
the country codes indicate the year when that debt ratio peaked.   

predicting  banking  crises  by  minimising  the  probability  of  missed  crisis  and  of  false  alerts  and  incorporating 
country-specific information on bank capitalisation, government debt, level of economic development.  

24 

050100150200250300LUCYIENLBESEFRPTUKMTFIESBGDKATITEEHRELHULVDESKSIPLCZLTRO15141514160918120809150909080912091012090909170916130911% of GDP201620172018Peak (since 2004)Fundamentals-based benchmark 2018Prudential threshold 2018020406080100120140160DKNLCYSEUKPTLUFIBEFRESELDEATMTSKIEITEEPLHRCZSIBGLTLVHURO09101418090918181818091304101218091209161018120809091010% of GDP201620172018Peak (since 2004)Fundamentals-based benchmark 2018Prudential threshold 2018 
 
 
 
  
 
 
 
                                                                                                                                                                    
25 

 
 
 
 
 
Private sector deleveraging is taking place mainly on the back of nominal GDP growth, at slower 
pace,  and  in  some  cases  high  debt  is  growing  again  rather  than  falling.  In  past  years,  NFC  and 
household debt in high-debt countries such as Cyprus, Ireland, Portugal, and Spain declined by at least 
25  percentage  points  of  GDP  from  their  peaks  (Graphs  18  and  19).  Estonia,  Hungary,  Latvia,  and 
Slovenia also recorded marked declines, especially in corporate debt ratios. In the latest years, the rate at 
which  debt  ratios have  been  falling  has  declined. This  is  more  evident in the case  of  household  debt. 
While most EU economies have continued witnessing falling debt ratios, some re-leveraging has also 
taken place, especially by households.  

  Deleveraging  increasingly  relies  on  nominal  GDP  growth.  Private  sector  credit  flows  remain 
moderate  and  no  Member  State  exceeded  the  scoreboard  threshold  for  this  variable  in  2018. 
Nominal GDP growth over the past years has allowed a number of countries to start entering into a 
mode  of  "passive  deleveraging",  i.e.,  falling  debt-GDP  ratios  despite  positive  credit  flows. 
Continued GDP growth has loosened the pressure to deleverage "actively", i.e., thanks to falls in 
the  nominal  debt  levels.  Indeed,  fewer  countries  are  displaying  negative  credit  flows  either  to 
corporations or to households compared with 2017 (Graphs 20 and 21). However, as the economic 
cycle has peaked, the contribution of the cyclical GDP upswing is becoming more limited or even 
reversing, implying that going forward the prospects for further passive deleveraging will crucially 
depend on potential GDP growth.  

  Concerning corporate debt, deleveraging has continued in most EU countries, relying increasingly 
on  GDP  growth.  Between  the  first  quarter  of  2018  and  the  first  quarter  of  2019,  NFCs  active 
deleveraging  took  place  only  in  Belgium,  Denmark,  Italy,  Luxembourg,  Portugal,  and  Slovenia 
(Graph  20,  which  is  based  on  non-consolidated  data).  In  Cyprus,  Malta,  and  Bulgaria  net  credit 
flows  to  the  corporate  sector  exceeded  5%  of  GDP,  despite  already  high  NFC  debt.  Somewhat 
dynamic  credit  flows  were  at  the  basis  of  rising  NFC  debt  in  France,  Germany,  and  Sweden.  In 
fact,  France  and  Sweden  have  been  leveraging  further  despite  recording  NFC  debt  above 
benchmarks.33 

  Regarding  households  debt,  deleveraging  has  slowed  down  more  markedly.  In  the  United 
Kingdom, Sweden, Belgium, and France, household debt as a share of GDP grew in  2018 despite 
being at relatively high levels (close to or above benchmarks). In few Member States only (Greece 
and  Ireland)  active  deleveraging  is  observed  (Graph  21).  Where  deleveraging  took  place,  it 
happened at reduced pace, particularly in Cyprus, Portugal, and Spain. 

33 In Ireland, net credit flows were negative and nominal GDP growth favourable, but positive valuation changes 
outweighed  these  effects  rendering  the  deleveraging  (in  non-consolidated  terms)  unsuccessful  in  the  period 
2018Q1-2019Q1, possibly reflecting the activity of multinational enterprises. 

26 

 
 
 
 
 
 
                                                      
Graph  20:  Decomposition  of  the  change  in 
NFC debt-to-GDP (2018 Q1 - 2019 Q1) 

Graph  21:  Decomposition  of  the  change  in 
household debt-to-GDP (2018 Q1 - 2019 Q1) 

Sources: Eurostat non-consolidated quarterly sector accounts, Commission services calculations. 
Notes: the graphs present a breakdown of the year-on-year evolution of the non-consolidated debt-to-GDP ratios 
into  five  components:  credit  flows,  potential  and  cyclical  real  GDP  growth,  inflation  and  other  changes.  The 
cyclical  component  of  GDP  growth  is  computed  as  the  difference  between  actual  and  potential  growth.  "Active 
deleveraging" involves net repayment of debt (negative net credit flows), usually leading to a nominal contraction 
of the sectorʼs balance sheet. "Passive deleveraging", on the other hand, consists in positive net credit flows being 
outweighed by higher nominal GDP growth, leading to a decrease in the debt-to-GDP ratio. 

Conditions  in  the  EU  banking  sector  have  improved  considerably  over  the  past  years  and  have 
broadly stabilised. The banking sector remains challenged especially by low levels of profitability and 
large stocks of non-performing loans (NPLs) in a number of Member States. TIER 1 capital ratios have 
stopped growing after having reached levels above regulatory requirements in all Member States, with 
substantial variation across countries. Returns on equity for the banking sector recovered significantly 
over  past  years  but  improvements  have  weakened  more  recently.  A  few  countries,  in  particular,  in 
Greece,  Italy,  and  Portugal  (Graphs  22  and  23),  are  challenged  by  a  combination  of  relatively  low 
profitability rates, capitalisations ratios below average and relatively high NPL ratios. 

  The growth in financial sector liabilities remain limited, well below the scoreboard threshold, 
except  for  Finland.  The  growth  in  financial  sector  liabilities  slightly  decelerated  in  2018  as 
compared  with  2017  in  a  majority  of  Member  States.34    Nonetheless,  bank  credit  flows  in  2018 
grew  at  a  slightly  higher  pace  as  compared  with  2017  notably  for  credit  to  households,  and 
stabilised over the first months of 2019 amid an incipient tightening of lending conditions.35  

  Capitalisation  ratios  stabilised  in  most  Member  States,  while  returns  on  equity  somehow 
worsened  in  a  number  of  cases  in  2018.  Returns  on  equity  remained  negative  in  Greece  and 
Portugal in 2018, while turned positive in Cyprus.  Bank equity valuations grew over 2017, while 
during 2018 and most of 2019 bank equity valuations have declined, despite a positive performance 

34 This increase in Finland in 2018 coincided with one bank moving its headquarters from Sweden to Finland. 
35 As reported by the euro area bank lending survey, see ECB, Economic Bulletin, August 2019. 

27 

-30-25-20-15-10-505101520LUPTBESIITDKNLLVELUKBGMTEEHRSKCYPLFIATROESHULTCZSEFRDEIEActive delev.Passive deleveragingNo delev.pps. of GDPNet credit flowsReal growth, potentialReal growth, cyclicalInflationOther changesD/GDP, ch.-8-6-4-20246IEELCYNLPTESLVDKHUEEMTROATSIPLBGFIHRSEITCZLTDEUKBESKFRLUAct.del.Passive deleveragingNo deleveragingpps. of GDPNet credit flowsReal growth, potentialReal growth, cyclicalInflationOther changesD/GDP, ch. 
 
 
 
 
 
 
                                                      
of overall European stock market indexes, reflecting among other factors, revised market views on 
the profitability prospects for the sector.  

  Some  EU  Member  States  stand  out  with  a  combination  of  relatively  low  profitability  and 
capitalisation ratios, as well as high NPL ratios.36 In Greece, the NPL ratio is still above 40%. 
Cyprus has recorded considerable improvements in its the NPL ratio, mainly as result of loan sales 
and the wind-down of a large bank in 2018, and profitability turned positive. In Portugal and Italy 
the  NPL  ratio  has  declined  markedly  since  2016  and  latest  data  point  to  further,  though  more 
moderate,  reductions  in  2018.  The  NPL  ratio  has  fallen  below  10%  in  both  countries.  Bulgaria, 
Croatia,  Hungary,  Ireland,  Romania,  and  Slovenia  recorded  declines  in  their  above-EU-average 
NPLs ratios over 2018. 

  The current economic outlook characterised by low-for-long interest rates is  arising further 
challenges. The decline of interest rates is being felt mostly at longer maturities, which leads to a 
flattening of yield curves and further compression of interest rate margins. Such flattening hampers 
maturity  transformation  by  banks  possibly  weighing  on  their  profitability.  As  the  low-yield 
environment  concerns  especially  low-risk  financial  assets,  it  could  strain  in  particular  the 
profitability  and  balance  sheet  of  non-bank  financial  institutions  with  asset  portfolios  largely 
invested in low risk assets, such as insurance companies, notably the life-insurance subsector, and 
pension funds.37   

Graph 22: 
Banking sector profitability and capital 

Graph 23: Non-performing loans 

36 NPLs in the set of the scoreboard auxiliary indicators is defined as total gross NPLs and advances as percentage 
of total gross loans and advances (gross carrying amount), for the reporting sector "domestic banking groups and 
stand-alone  banks,  foreign  controlled  subsidiaries  and  foreign  controlled  branches,  all  institutions”.  Values  are 
provided in Table 2.1 in annex. Harmonised data on NPL ratios are available only since 2014. Thus, for the data 
concerning  2008  and  the  "increase  to  peak",  Graph  23  displays  data  for  the  ratio  of  gross  non-performing  debt 
instruments  (NPDs)  over  total  gross  debt  instruments,  which  is  available  in  longer  time  series,  and  that  refers, 
besides loans, also to other debt instruments held by the banking sector. The latter is typically slightly lower than 
NPL ratios, much because the denominator is larger, i.e.,  total gross debt instruments are larger than total loans. 
The maximum difference between the two ratios currently amounts to 4 percentage points (for Greece), while for 
most countries it is below 1 p.p. 
37 ECB, Financial Stability Review, May 2019.  

28 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUK-30369121518121416182022Return on equity (%, 2018)Tier 1 ratio (2019 Q1)EA (2018)EA (2017)EU (2018)EU(2017)05101520253035404550ELCYPTITHRBGLVPLSIROIEHUESSKFRMTLTATEEDKBECZNLFIDEUKSELU17141615141210101313131313151315101410141316141416151415% of total gross debt instrumentsCountry | Peak year2008 (NPDs)Increase to peak (NPDs)2019Q1 (NPLs)2018Q1 (NPLs) 
 
 
 
 
 
                                                      
Source:  Data  on  gross  non-performing  debt  instruments  (NPDs)  for  2008  are  unavailable  for  Croatia,  Czechia, 
Ireland, Slovenia, and Sweden.  
Note:  On Graph  23, data  concerning 2008 and the "increase  to  peak" refer to the ratio  of  gross  non-performing 
debt  instruments  (NPDs)  over  total  gross  debt  instruments;  NPL  ratios  are  reported  for  2018Q1  and  2019Q1; 
numbers below the country codes indicate the year when NPDs peaked. 

House prices continued growing at high rates in 2018, but price dynamics cooled where evidence 
of overvaluation is stronger. The acceleration of house price growth is bringing a growing number of 
housing markets close or above their pre-crisis peaks (Graph 26). In 2018, 7 Member States showed real 
house price growth above the scoreboard threshold (Czechia, Hungary, Ireland, Latvia, the Netherlands, 
Portugal, and Slovenia), one more compared with 2017. House price growth was particularly strong in 
EU countries that so far have shown  only limited or no evidence of overvalued house prices, while a 
slowdown is observed in countries characterised by stronger evidence of overvaluation. Data up to the 
second  quarter  of  2019  suggest  that  the  scoreboard  threshold  may  be  surpassed  this  year  by  Croatia, 
Czechia, Hungary, Poland, and Portugal if those patterns continue into the second half of the year. In the 
first  half  of  this  year,  and  in  comparison  with  2018,  house  price  growth  accelerations  stood  out  in 
Croatia, Cyprus, and Sweden, and decelerations in Denmark, Ireland, Latvia, Romania, and Slovenia. 

  Part  of  the  acceleration  in  house  prices  is  linked  to  economic  fundamentals.  House  price 
growth started resuming on the back of the economic recovery started in 2013 and the reduction of 
interest rates. In this respect, it can be explained by economic fundamentals.38 Despite accelerating, 
the growth in new mortgage credit had instead so far no major autonomous role in driving prices, 
unlike  it  was  the  case  in  the  pre-crisis  period.  It  could  however  contribute  to  the  persistence  of 
ongoing house price accelerations. 

  Strong  house  price  growth  has  implications  for  valuation  levels.  In  Hungary,  Ireland,  Latvia, 
the  Netherlands,  Portugal,  and  Slovenia,  real  house  price  growth  was  already  high  in  2017  and 
further accelerated in 2018 (Graph 24 and Graph 25, upper right quadrant). Protracted high growth 
in a number of countries is gradually increasing overvaluation risks: the number of EU countries 
assessed  to  be  characterised  by  overvalued  house  prices  has  been  rising  over  the  past  years. 
Evidence of overvaluation (as measured by a growing valuations gap) has lately become stronger in 
countries such as Germany or Portugal. House prices are at or above peak levels since mid-2000s 
in  a  number  of  countries  (Austria,  Belgium,  Czechia,  Germany,  Luxembourg,  Malta,  Portugal; 
Graph  26).  House  price  levels  in  a  number  of  countries  are  hitting  affordability  constraints,  as 
revealed by the ratio between house price levels and per capita disposable income. Estimates reveal 
that in about half of the EU countries more than 10 years of income are necessary to purchase a 100 

38 House price benchmarks allow to gauge the extent of overvaluation or undervaluation of house prices based on 
country-specific  characteristics.  Synthetic  valuations  gaps  are  based  on  the  gap  obtained  from  different 
benchmarks: (i) price-to-income deviation with respect to its long-term average; (ii) price-to-rent deviation from 
its long-term average; (iii) deviation from regressions-based benchmarks taking into account demand and supply 
economic fundamentals (see N. Philiponnet and A. Turrini (2017), "Assessing House Price Developments in the 
EU",  European  Commission  Discussion  Paper  048,  May  2017).  In  the  computation  of  the  regression-based 
benchmarks, cyclical explanatory variables are HP filtered to contain their volatility.  

29 

 
 
 
 
                                                      
square  meter  dwelling.39  Similarly,  one  in  ten  Europeans  live  in  a  household  that  spent  40%  or 
more of its income on housing in 2017.40 

  House prices decelerated somewhat in a number of countries with evidence of overvaluation 
and  high  household  debt,  and  a  downward  correction  in  the  Swedish  housing  market  has 
started.  Recent  house  price  growth  rates  have  tended  to  be  lower  the  higher  the  extent  of  the 
overvaluation. Such pattern, which was not visible in previous years, is clearly discernible in 2018 
for countries with house prices estimated to be overvalued. In 2018, Austria, Belgium, France, and 
the United Kingdom stood out for the combination by different degrees of overvalued house prices, 
high  household  debt,  but  also  house  prices  growing  less  in  2018  than  in  2017  (Graph  25).  Such 
decelerations could reflect affordability constraints, a recovery in housing supply, and policies put 
in place at country level, including in the macro-prudential field.41 In addition, in Sweden, house 
prices,  fell  in  2018  on  an  annual  basis  both  in  nominal  and  real  terms,  but  data  for  the  first  two 
quarters  of  2019  point  to  some  stabilisation.  In  contrast,  no  adjustment  has  taken  place  in 
Luxembourg, where vulnerabilities and risks of overvaluation continued growing. 

  In  a  number  of  Member  States,  overvalued  house  prices  coexist  with  large  household  debt 
levels. This is notably the case in Denmark, Luxembourg, Sweden, and the United Kingdom. The 
Netherlands is marked by very high household debt and high price levels with respect to income. 
The  growth  of  the  mortgage  stock  in  2018  was  particularly  rapid  in  Bulgaria,  Romania,  and 
Slovakia  (above  10%  over  the  previous  year),  and  Austria,  Belgium,  Czechia,  Estonia,  France, 
Hungary,  Lithuania,  Luxembourg,  and  Malta  (above  5%  over  the  previous  year).  In  some  cases, 
strong  growth  took  place  starting  from  relatively  high  levels,  such  as  Belgium  or  France.  The 
picture  changes  somehow  when  considering  the  change  in  debt  associated  with  new  mortgages 
only,  i.e.  excluding  the  impact  of  repayments  (Graph  27).  The  cross-country  relation  between 
house price and new mortgage flows appears weak, with no clear indication that prices grow faster 
where new mortgages are more abundant. This suggests that credit has so far not played a key role 
in driving accelerations in house prices.42 Yet, in a number of countries, strong house price growth 
has been associated with strong mortgage growth, notably in Slovakia, Luxembourg, Germany, and 
the Netherlands.  

39  Price  level  estimates  are  obtained  on  the  basis  of  national  account  and  census  data  or,  when  not  available, 
information published on real estate agents websites. See J. C. Bricongne et al. (2019),” Assessing House Prices: 
Insights  from  "Houselev",  a  Dataset  of  Price  Level  Estimates”,  European  Economy,  Discussion  Paper  No.  101, 
July 2019.  
40 European Commission (2019), Employment and Social Developments in Europe, Annual Review 2019, Chapter 
4. 
41 Construction investment has been growing at faster rates since 2015 across the EU, with highest growth rates 
observed where house price growth is stronger. Building permits are also on the rise in a majority of EU countries. 
A number of macro-prudential policies recently put in place across the EU could have affected the speed at which 
house prices  have been growing. This is the case  especially for caps to loan-to-value  ratios and debt service-to-
income ratios. Housing taxation has been reformed in recent years in a number of EU Member States notably with 
a view to contain the extent of mortgage tax relief. 
42 In most euro area countries, house price accelerations taking place after the crisis predated the acceleration in 
mortgage growth. See, e.g., European Commission, “Euro-area housing markets: Ongoing trends, challenges, and 
policy responses”, note to the Economic Policy committee  - Euro  Area,  Ares(2019)922432, February 2019; and 
European Commission, “Euro-area housing markets: Ongoing trends, challenges, and policy responses”, technical 
note to the Eurogroup, February 2019: 
https://www.consilium.europa.eu/media/38387/housing-note-eg-26-02-2019-technical-note.pdf 

30 

 
 
 
 
 
 
                                                      
Graph 24: House prices changes and valuation 
gaps in 2018 

Graph 25: Valuation gaps, changes in price 
growth between 2017 and 2018, and household 
debt (% of households income) 

Source: Eurostat and Commission services calculations. 
Note: the overvaluation gap is estimated as an average of three metrics: the deviations in the price-to-income and 
the price-to-rent ratios from their long-run averages, and the results from a fundamental model of valuation gaps; 
see  footnote  38.  The  size  of  the  bubbles  in  Graph  25  corresponds  to  the  ratio  of  households'  debt  in  terms  of 
households' gross disposable income (GDI). For Croatia, data for households' GDI after 2012 are not available and 
are extrapolated on the basis of the economy's GDI growth; households' GDI data for Malta are missing and are 
proxied by 56% of Gross National Income.  

Graph 26: House price levels as compared with 
incomes and real house price indexes compared 
with peaks, 2018 

Graph  27:  House  price  growth  and  new 
mortgage credit in 2018 

Source: Eurostat and Commission services calculations. 
Note: Data for six countries on new mortgage credit are missing (Bulgaria, Denmark, France, Malta, Sweden, and 
the United Kingdom). Price levels-to-income levels are measured as the ratio between the price of a 100 square 
meter dwelling in and average household disposable income. Data for household GDI per capita after 2012 are not 

31 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK-4-2024681012-30-101030Deflated HP growth, 2018 (%)Estimated valuation gap, 2018 (%)BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK-9-6-303-30-20-100102030Change in deflated house prices growth between 2017 and 2018 (pps.)Estimated valuation gap, 2018 (%)IEHRLUFRNLCYELUKATESSEPTHUSIMTBEPLEEDKITDEROCZLVSKBGLTFI50607080901006810121416Deflated house price in 2018 (index; peak 2004-18=100)Price level-to-income in 2018, yearsBECZDEEEIEGRESHRITCYLVLTLUHUNLATPLPTROSISKFI-4-2024681012024681012Deflated HP y-o-y growth, 2018 (%)New mortgage credit 2018 (% GDP) 
 
 
 
 
 
 
 
available for Croatia, and are extrapolated on the basis of the economy's GDI growth; for Malta, households' GDI 
data are missing and are proxied by 56% of Gross National Income. 

Government debt ratios have declined further in most of the EU, but not in a few Member States 
where  they  are  the  highest.  Debt  ratios  exceeded  the  scoreboard  threshold  in  14  Member  States  in 
2018, from 15 in 2017. Belgium, Cyprus, Greece, Italy, and Portugal display debt at or exceeding 100% 
of  GDP,  and  France  and  Spain  are  just  below  that  mark.  For  seven  cases  (Belgium,  Cyprus,  France, 
Ireland, Portugal, Spain, and the United Kingdom) government debt in excess of 60% of GDP combines 
with private sector indebtedness in excess of the respective scoreboard threshold. In 2018, government 
debt ratios declined further, but often somewhat less than in the previous year reflecting some loosening 
of  budgetary  positions  and  already  some  cooling  of  nominal  GDP  growth.  Yet  some  of  the  highest 
public debt ratios did not improve or even edged up further in 2018: government debt was unchanged in 
France and increased in Cyprus, Greece, and Italy. While that was in some cases due to exceptionally 
large  debt-increasing  stock-flow  adjustments,  it  reflects  a  lack  of  fiscal  consolidation  in  others. 
Government bond yields have nevertheless declined and compressed further also in the course of 2019 
even for the most indebted sovereign borrowers and all-time troughs kept being reached. Going forward, 
debt ratios are forecast to grow throughout 2019 to 2021 especially in Romania, but also Italy, and to a 
lesser extent in Finland and France, while receding somewhat less than recently in most of the other EU 
countries.  

32 

 
 
 
 
 
 
 
Box 1: Employment and social developments 

In 2018, improvements in the EU labour markets continued despite the slowdown in economic 
activity  in  the  second  half  of  the  year.  Employment  has  grown  further  in  the  EU  and  set  a  new 
record  in  the  number  of  persons  employed.  Unemployment  has  been  declining  in  all  EU  Member 
States, especially where it is high, contributing to less disparity across countries, although joblessness 
remains  high  in  a  number  of  them.  Improvements  slowed  in  the  first  half  of  2019,  potentially  also 
reflecting smaller remaining labour reserves. The recovery also contributed to improvements in most 
poverty indicators but the social situation remains a concern in some Member States. Since 2008, the 
risk of poverty and social exclusion has decreased in most of the EU (7 million people less compared 
with 2008; some 13 million compared with 2012), as well as severe material deprivation, especially in 
central and eastern European countries with a high initial level. However, relative poverty risk is still 
above  pre-crisis  levels  in  many  Member  States.  Overall,  the  unwinding  of  severe  macroeconomic 
fragilities  has  had  a  toll  on  the  employment  and  social  situations  of  the  countries  concerned.  In 
particular, Member States facing excessive imbalances continued to be marked by weaker employment 
situation  and  social  developments;  the  situation  of  the  countries  with  imbalances  is  somewhat  more 
diverse reflecting much also the different nature of the imbalances and their severity. 

In 2018, the unemployment rate decreased further in all Member States but remains high in some 
of them. Improvements were the strongest in countries with high levels of unemployment (reductions 
of more than 2 percentage points in Croatia, Cyprus, and Greece). Nevertheless, in 2018 five Member 
States  (Greece,  Spain,  Croatia,  Cyprus,  and  Italy)  still  exceeded  the  MIP  scoreboard  indicator 
threshold  of an  average  10%  over  the  past  3  years.  In  2018,  unemployment  rates  were significantly 
below the peaks reached in 2013 by about 4 percentage points, but still higher than in 2008 in around 
half of the Member States. Unemployment rates continued to decrease in the first half of 2019, down 
to 6.3% and 7.5% in 2019-Q3 in the EU and the euro area respectively.  

Employment rates improved further in all Member States. The EU employment rate (20-64 years 
old)  recorded  its  highest  rate  in  2018  at  73.2%  (72.0%  in  the  euro  area)  and  kept  increasing  in  the 
second  quarter  of  2019  up  to  a  record  73.9%,  well  above  the  pre-crisis  peak  of  70.2%  recorded  in 
2008.  The  highest  increase  in  headcount  employment  with  respect  to  2017  was  registered  in  Malta 
(5.4%),  followed  by  Cyprus  (4.1%),  Luxembourg  (3.7%),  and  Ireland  (3.2%),  while  the  lowest 
increases were observed in Poland (0.3%), Romania (0.2%), and Italy (0.9%). 

Activity rates continued to increase nearly everywhere in the EU. Only two countries registered a 
declining activity rate (15-64 years old) over the last three years: Croatia and Spain, and in both cases 
it exceeded the scoreboard threshold of  -0.2 (-0.6 percentage points in both cases). On aggregate, in 
2018  for  the  EU  and  the  euro  area  activity  rates  set  record  highs  at  73.7%  and  73.4%  respectively, 
about  3.5  and  2.5  percentage  points  above  the  pre-crisis  levels,  mostly  driven  by  increasing  labour 
market participation by older workers and women.  

Long-term and youth unemployment improved more strongly than the rest of the labour market 
but  remain  elevated  in  a  number  of  EU  countries.  Long-term  unemployment  decreased  in  all 
Member  States  in  2018  and  all  countries  recorded  lower  rates  than  three  years  earlier.  The  highest 
rates of long-term unemployment were observed in Greece (13.6%), Spain (6.4%), Italy (6.2%), and 
Slovakia (4%) but all except Italy, recorded significant drops compared to 2015 (around 5 percentage 
points in Spain, 4.6 pp in Greece, and 3.6 pp in Slovakia). The youth unemployment rate fell in all EU 
countries  in  the  three  years  to  2018.  Falls  of  10  percentage  points  or  more  over  that  period  were 
recorded in Croatia, Cyprus, Portugal, Slovakia, and Spain. Yet the youth unemployment rate is still 

33 

 
 
 
 
above 30% in Greece, Italy, and Spain. At the same time, 9.6% of young people (15-24 years) in the 
EU in 2018 were neither in employment nor in education and training (NEET). Furthermore, several 
Member  States  (Bulgaria,  Croatia,  Cyprus,  Greece,  Italy,  Romania,  and  Spain)  record  rates  above 
12%. 

Poverty  and  social  exclusion  declined  further  but  remains  elevated  in  a  number  of  Member 
States. The share of people at risk of poverty or social exclusion (AROPE) decreased further in the 
EU  to  21.9%  in  2018.  This  is  about  3  percentage  points  below  the  peak  observed  in  2012.43  While 
most  countries  recorded  decreases  in  the  three  years  to  2018,  Estonia,  Luxembourg,  the  United 
Kingdom,  and  the  Netherlands  recorded  increases,  albeit  in  some  cases  (the  Netherlands  and 
Luxembourg)  from  comparatively  low  levels.  Despite  a  significant  drop  in  the  level  of  the  AROPE 
rate from nearly 39% to 32.8%, Bulgaria continues recording the highest level in the EU, followed by 
Romania and Greece, with both cases over 30%, and Latvia and Lithuania just below that mark. The 
lowest  AROPE  rates  are  recorded  in  Czechia  (12.2%),  followed  by  Slovenia  (16.2%),  Slovakia 
(16.3%), Finland (16.5%), and the Netherlands (16.8%). Despite those overall positive developments 
in poverty and social exclusion, some of its components show different evolutions, which is a source 
of concern in some EU countries, notably:  

  The share of people at risk of poverty (AROP) has increased in one third of the Member States in 
recent  years:  the  largest  increases  over  a  three-year  period  were  recorded  in  Luxembourg  (3 
percentage points), the United Kingdom (2.3 pp), the Netherlands (1.7 pp), and Belgium (1.5 pp), 
while  a  significant  decrease  was  recorded  in  Greece,  Hungary,  Poland,  and  Portugal,  always 
between 2 and 3 pps.  

  In contrast, severe material deprivation (SMD) declined over a 3-year period (and also in 2018) in 
most EU Member States; over a three-year period it declined by more than 13 percentage points 
in Bulgaria while Croatia, Cyprus, Greece, Hungary, Latvia, Malta, and Romania recorded drops 
of 5 percentage points or more.  

  Finally, the recovery brought a decline in the share of people (under 60) living in households with 
very  low  work  intensity  in  almost  all  EU  countries,  except  in  Luxembourg  and  Sweden  where 
that  share  increased,  and  in  Finland  where  it  remained  stable  in  the  three  years  to  2018.  In 
parallel, in-work poverty slightly increased to 9.5% in 2018 for the EU as a whole  and remains 
close to the peak of 9.6% in 2016. 

43  The  indicator  At  risk  of  poverty  or  social  exclusion  (AROPE)  corresponds  to  the  share  of  persons  who  are  vulnerable 
according to at least one of three social indicators: (1) At risk-of-poverty (AROP), which measures monetary poverty relative to 
the  national  income  distribution  and  is  calculated  as  the  share  of  persons  with  disposable  income  (adjusted  for  household 
composition) below 60% of the national median; (2) Severe material deprivation (SMD), which covers indicators related to a 
lack of resources, and represents the share of people experiencing at least 4 out of 9 deprivations items, based on the inability to 
afford some specific types of expenses; (3) People living in households with very low work intensity are those aged 0-59 living 
in households in which adults (aged 18-59) worked less than 20% of their total work potential during the past year. The income 
reference period for  the data behind these measures is a  fixed  12-month period, such as the previous calendar or tax year to 
which the data refer for all countries, except the United Kingdom for which the income reference period is the current year and 
Ireland for which the survey is continuous and income is collected for the last twelve months.  

34 

 
 
 
 
 
 
 
                                                      
4. 

SUMMARY OF MAIN CHALLENGES AND SURVEILLANCE IMPLICATIONS 

Rebalancing  within  the  euro  area  is  still  incomplete,  while  rebalancing  of  both  current  account 
deficits and surpluses is pressing in the current economic context and would be beneficial for all 
Member  States.  Whereas  most  large  current  account  deficits  have  been  corrected,  large  surpluses 
persist  in  a  number  of  euro  area  countries.  The  euro  area  position  has  gradually  moved  to  a  surplus 
which has started to slightly narrow mainly in light of reduced foreign export demand. Stock imbalances 
have  started  adjusting  but  remain  substantial,  with  some  euro  area  countries  still  displaying  largely 
negative  NIIP  positions  while  other  recording  largely  positive  and  growing  NIIPs.  Unit  labour  costs 
have been growing at a faster pace in net-creditor countries compared to net-debtor ones, thus reversing 
the patterns observed before the financial crisis. That trend persists, but has weakened compared with 
the earlier post-crisis years as tighter labour markets in net-debtor countries lead to higher wage growth 
against  a  backdrop  of  sluggish  productivity  while  wage  upswings  in  net  creditors  have  been  limited 
even  after  years  of  low  unemployment.  Symmetric  rebalancing  of  current  account  positions  would 
contribute  to  overcome  the  current  low-inflation,  low-interest-rate  environment  while  supporting 
nominal growth, thereby supporting deleveraging and the rebalancing of net-debtor positions.   

Overall,  challenges  are  present  in  a  number  of  Member  States,  for  different  reasons  and  to  a 
different  extent.  The  degree  of  severity  of  the  challenges  for  macroeconomic  stability  varies 
significantly  across  Member  States,  depending  on  the  nature  and  extent  of  vulnerabilities  and 
unsustainable  trends,  and  the  way  they  interact  with  each  other.  The  main  sources  of  potential 
imbalances combine according to a number of typologies summarised as follows: 

  A number of Member States continue to be mainly affected by  multiple and interconnected stock 
vulnerabilities.  This  is  typically  the  case  for  those  countries  that  were  hit  by  boom-bust  credit 
cycles coupled with current account reversals that also had implications for the banking sector and 
for government debt.  

o  In  the  case  of  Cyprus  and  Greece,  elevated  debt  stocks,  and  large  negative  net  international 
investment  positions  are  coupled  with  remaining  challenges  for  the  financial  sector,  although 
improvements on the front of NPLs and profitability are observed in Cyprus and the decline in 
NPLs has accelerated in Greece since 2018 but levels remain very high. In the case of Greece, 
potential output growth is low in a context of high (although declining) unemployment.  

o  In Croatia, Ireland, Portugal, and Spain, vulnerabilities stemming from stock legacy issues are 
also  significant,  multiple,  and  interconnected.  In  Bulgaria,  corporate  indebtedness  is  coupled 
with a past of lingering issues with the financial sector that are being addressed by policy.  In 
those countries, stock-related imbalances have been receding on the back of resumed nominal 
growth,  associated  in  some  cases  with  the  re-emergence  of  strong  growth  in  house  prices  (in 
Ireland,  and  more  recently  in  Portugal),  as  well  as  resuming  ULC  growth  and  stalling 
competitiveness gains in Portugal and Spain and strong ULC increases in Bulgaria.   

  In  a  few  Member  States,  vulnerabilities are  mainly  linked  to  large  stocks  of  general government 
debt  coupled  with  concerns  relating  to  potential  output  growth  and  competitiveness.  This  is 
particularly  the  case for  Italy,  where  vulnerabilities  are  also linked  to the  banking  sector  and the 
large  but  rapidly  declining  stock  of  NPLs,  and  in  a  context  of  weak  labour  market  performance. 
Belgium  and  France  mainly  face  a  high  general  government  debt  and  potential  growth  issues 
amidst also compressed competitiveness. In France, a relatively high stock of private debt is on the 
rise. In Belgium, a relatively high and growing stock of household debt is coupled with possibly 
overvalued house prices; the external position remains solid but has weakened somewhat recently.  
35 

 
 
 
 
  Some Member States are characterised by large and persistent current account surpluses that also 
reflect,  to  a  varying  degree,  subdued  private  consumption  and  investment,  in  excess  of  what 
economic fundamentals would justify. This is the case notably for Germany and the Netherlands. In 
the Netherlands, a large surplus is coupled with a high stock of household debt and strong house 
price  growth;  house  price  pressures  have  been  noted  recently  also  in  Germany  but  debt  levels 
therein are comparatively low. The large and persistent surpluses may reflect forgone growth and 
domestic  investment  opportunities,  which  bear  consequences  for  the  rest  of  the  euro  area  in  a 
context of protracted below-target inflation and weakening foreign demand. 

  In  some  Member  States,  developments  in  price  or  cost  variables  show  potential  signs  of 

overheating, particularly as regards the housing market or the labour market.  

o  In Sweden, and to a lesser extent in Austria, Denmark, Luxembourg, and the United Kingdom, 
sustained  house  price  growth  has  been  observed  in  recent  years  in  a  context  of  possible 
overvaluation  gaps  and  significant  levels  of  household  debt.  Recent  evidence  points  towards 
some downward adjustment in terms of prices and overvaluations in Sweden, and to house price 
decelerations  in  the  other  cases  (except  Luxembourg).  Stronger  but  more  recent  house  price 
growth  is  coupled  with  more  limited  evidence  of  overvaluation  in  Czechia,  Hungary,  Latvia, 
Slovakia, and Slovenia, which in the cases of Czechia and Slovakia has been observed together 
with  continued  mortgage  borrowing  and  rising  debts  by  households.  Finland  does  not  seem 
marked by strong house price growth or possible overvaluation but by high and rising household 
debt. 

o  In Czechia, Estonia, Hungary, Latvia, Lithuania, Slovakia, and Romania, labour costs continue 
to grow at a relatively strong pace while price competitiveness is edging down. In recent years, 
strong ULC growth have been coupled with a marked reduction of the current account surplus 
in  Hungary,  and  a  contained  but  persistent  current  account  deficit  in  Slovakia.  In  the  case  of 
Romania,  a  protracted  very  strong  growth  in  ULCs  is  recorded  against  the  background  of  a 
further worsening current account balance deficit and expansionary fiscal policies.  

Overall, IDRs are warranted for 13 Member States: Bulgaria, Croatia, Cyprus, France, Germany, 
Greece, Ireland, Italy, the Netherlands, Portugal, Romania, Spain, and Sweden. All those Member 
States were subject to an IDR in the previous annual cycle of MIP surveillance, and were considered to 
be  experiencing  imbalances  or  excessive  imbalances.  The  new  IDRs  will  help  going  deeper  into  the 
analysis  of  those  challenges  and  assessing  policy  needs.  In  particular,  forthcoming  IDRs  will  be 
prepared to assess if those imbalances are aggravating or are under correction, with the view to update 
existing  assessments. This AMR  points  also  to the  possible  building  up of  risks in  a  number of  other 
Member States that, on the basis of current information, do not seem to warrant an IDR at this stage but 
nonetheless still justify a close monitoring notably in the upcoming country reports. Those risks concern 
notably  developments  related  to  competitiveness  (Czechia,  Estonia,  Hungary,  Latvia,  Lithuania,  and 
Slovakia)  and  to  housing  prices  and  housing  markets  and  household  debt  developments  (Austria, 
Belgium,  Czechia,  Denmark,  Finland,  Hungary,  Luxembourg,  Slovakia,  Slovenia,  and  United 
Kingdom).  

36 

 
 
 
 
 
5. 

IMBALANCES, RISKS AND ADJUSTMENT: MEMBER STATE SPECIFIC COMMENTARIES  

Belgium: In the previous round of the MIP, no macroeconomic imbalances were identified in Belgium. 
In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative  threshold,  namely  the 
change of the real effective exchange rate, private debt and government debt.  

The  current  account  recorded  a  limited  deficit  in  2018 
while the positive net international investment position is 
elevated. Although productivity growth is low, the rise in 
unit  labour  costs  remained  contained  as  wage  increases 
has  been  moderate.  The  three-year  change  in  the  real 
effective  exchange  rate  has  further  appreciated  and 
exceeded  the  threshold  although  the  one-year  change 
showed only a modest acceleration. Export market shares 
have  been  broadly  stable.  The  high  corporate  debt  to 
GDP  ratio,  though  figures  are  inflated  by  widespread 
cross-country 
is  decreasing. 
Household  debt,  mostly  mortgage  related,  is  relatively 
high and growing while real house prices kept increasing 
at  moderate  pace  in  recent  years  and  there  are  signs  of 
potential overvaluation. Government debt is high and is 
decreasing  only  slowly.  Job  creation  continued  to  be 
positive and the unemployment rate dropped to a record 
low. The inactivity rate is high. 

intra-group 

lending 

Overall,  the  economic  reading  highlights  issues  relating  to  public  but  also  to  private  indebtedness, 
though the risks remain contained. Therefore, the Commission will at this stage not carry out further in-
depth analysis in the context of the MIP. 

Bulgaria: In February 2019, the Commission concluded 
that Bulgaria was experiencing imbalances in particular 
related  to  vulnerabilities in  the financial sector  coupled 
with high indebtedness and non-performing loans in the 
corporate sector. In the updated scoreboard, a number of 
indicators  are  beyond  the  indicative  threshold,  namely 
the  net  international  investment  position  (NIIP)  and 
nominal unit labour cost growth.  

The  external  position  of  the  economy  strengthened 
further  with  a  widening  current  account  surplus  and  a 
rapidly improving negative net international investment 
position  that  is  approaching  the  threshold.  While  there 
have  been  cumulated  gains  in  export  market  shares,  a 
tight  labour  market  and  skill  shortages  have  pushed  up 
wage  growth.  As  a  result,  unit  labour  costs  growth  is 
significantly beyond the threshold which warrants attention. In the context of favourable economic and 
financing  conditions,  the  banking  sector  strengthened  its  capital  and  liquidity  ratios  overall.  Credit 
growth is strong and is fully financed by expansion of the deposit base. Non-performing loans continue 

37 

Graph A1: Debt across sectors in the economySource: Eurostat0501001502002500809101112131415161718% of GDPBelgiumNon-financial corporationsHouseholdsGeneral GovernmentGraph A2: Private debt and non-performing loansSource: Eurostat and ECB05101520250204060801001201400809101112131415161718% of GDPBulgariaHouseholdsNon-financial corporationsNon-performing loans (rhs)% of total loans 
 
 
 
 
to  decline,  but  remain  comparatively  high  for  non-financial  enterprises  and  in  domestically  owned 
banks.  A  number  of  measures  have  been  and  are  being  introduced  to  strengthen  banking  and  non-
banking supervision. However, some challenges and vulnerabilities remain related to capital shortfalls 
in  some  banking  institutions  and  pending  concerns  in  the  insurance  sector.  Corporate  debt  is  still 
relatively  high,  although  it  has  decreased  substantially.  Government  debt  is  low  and  falling.  House 
prices  continued  to  rise,  albeit  at  a  slower  pace  and  in  line  with  fundamentals.  Mortgage  credit  and 
building permits picked up strongly and warrant close attention to future developments. Unemployment 
dropped to very low levels and the activity rate, although relatively low, continues increasing.  

Overall, the economic reading highlights issues relating to the remaining vulnerabilities in the financial 
sector.  Therefore,  the  Commission  finds  it  opportune,  also  taking  into  account  the  identification  of 
imbalances in February, to examine further the persistence of imbalances or their unwinding. 

Czechia: In the previous round of the MIP, no macroeconomic imbalances were identified in Czechia. 
In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative  threshold,  namely  real 
effective exchange rate, nominal unit labour cost growth and real house price growth. 

The current account balance shows a small but decreasing 
surplus  while  the  negative  net  international  investment 
position  continued  to  narrow.  The  end  of  the  exchange 
rate  commitment  in  April 2017  led  to an  appreciation  of 
the  real  effective  exchange  rate,  particularly  in  2018. 
Nominal unit labour costs have increased significantly, on 
the  back  of  strong  wage  rises  and  acute  labour  market 
shortages  although  a  deceleration  is  expected  looking 
forward.  So  far  there  have  been  gains  of  export  market 
shares. At the same time, the country is exposed to  risks 
relating  to the  trade  policy  environment and the possible 
disruption of global value chains. Real house price growth 
has  remained  high  but  with  a  deceleration  in  2018 
compared  to  2017.  Furthermore,  private  sector  debt 
including  household  debt  is  relatively  low.  The  banking 
sector  is  very  robust,  with  a  very  low  rate  of  non-
performing loans. Government debt continues to decrease as the government budget has been in surplus 
since 2016. The unemployment rate decreased further, as the labour market remains very tight.  

Overall, the economic reading highlights issues relating to competitiveness and pressures in the housing 
market  although  the  risks  appear  largely  contained. Therefore,  the  Commission  will  not  at  this  stage 
carry out further in-depth analysis in the context of the MIP. 

38 

Graph A3: GDP, ULC and house pricesSource: Eurostat-6-4-202468100809101112131415161718Rate of change y-o-y (%)CzechiaULC growthReal GDP growthDeflated house price index 
 
 
 
 
 
 
Denmark:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  in 
Denmark. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely 
the current account balance and private sector debt.  

The  current  account  balance  continues  to  show  large, 
albeit  narrowing,  surpluses.  The  current  account 
surplus narrowed recently as corporates saved less and 
invested  more  domestically.  Consecutive  surpluses 
have  led  to  a  strongly  positive  net  international 
investment  position,  generating  positive  net  primary 
income,  which  in  turn  reinforces  the  positive  current 
account balance. Productivity growth has been muted, 
weighing on cost competitiveness indicators and there 
has been some limited losses of export market shares. 
reflecting 
has 
Household 
deleveraging  needs  and  macro-prudential  policy 
measures  to  restrict  risky  loan  taking.  At  the  same 
time,  debt  build  up  continues  to  be  supported  by  low 
financing  costs  and  a  benign  tax  treatment.  Overall, 
household  debt  remains  the  highest  in  the  EU  as  a 
percentage of GDP despite some slow deleveraging trends. Corporate indebtedness, on the other hand, 
is moderate. Real house prices are increasing at a continuous although moderate pace while valuation 
indicators indicate some overvaluation. The labour market continues improving and employment growth 
remains  solid.  Labour  shortages  are  widespread  but  have  recently  eased,  moderating  the  upward 
pressure on wages.  

increased 

saving 

Overall, the economic reading highlights issues linked to external surplus and the high household debt 
including  the  housing  sector  although  risks  appear  contained.  Therefore,  the  Commission  will  not  at 
this stage carry out further in-depth analysis in the context of the MIP. 

In  February  2019, 
that  Germany  was 

the  Commission 
Germany: 
concluded 
experiencing 
macroeconomic imbalances, in particular related to its 
large  current  account  surplus  reflecting  subdued 
investment  relative  to  saving,  both  in  the  private  and 
public  sector.  In  the  updated  scoreboard,  a  number  of 
indicators are beyond the indicative threshold, namely 
the current account balance, the real effective exchange 
rate  and government debt.  

The  current  account  continues  to  be  in  very  large 
surplus  although  narrowing  somewhat  in  2018.  As 
foreign  trade  weakened,  there  is  a  shift  towards  more 
domestic  demand-driven  growth.  Accordingly,  the 
to  continue 
current  account  surplus 
narrowing,  but  to  remain  at  a  high  level  and  lead  to 
further  increases  in  the  already  large  net  international 
investment  position.  The  weakness  in  productivity  growth  contributed  to  the  increase  of  unit  labour 

is  expected 

39 

Graph A4:Household debt and house price indexSource: Eurostat and ECB50607080901001101200204060801001201401600809101112131415161718House price index, 2015=100Household debt, % of GDPDenmarkOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs)Graph A5: Net lending/borrowing by sectorSource: Eurostat-505100809101112131415161718% of GDPGermanyHouseholdsGeneral governmentFinancial corporationsNon-Financial corporationsTotal Economy 
 
 
 
costs  and  the  real  effective  exchange  rate  continued  to  appreciate.  Nominal compensation  growth  has 
picked up, also due to one-off policy effects, in a context of a tight labour market and is expected to 
moderate in the near term. Export growth decelerated markedly in 2018, accompanied by limited losses 
in  export  market  shares  on  an  annual  basis.  Real  house  prices  and  construction  costs  have  been 
increasing  and  warrant  attention,  also  with  respect  to  regional  disparities  in  prices  and  availability  of 
housing.  Housing  investment  continues  to  rise,  but  it  is  still  lagging  behind  housing  needs  in 
metropolitan  areas.  Credit  growth  is  gradually  strengthening.  Government  debt  continued  to  decrease 
and  is  expected  to  fall  below  the  threshold  of  60%  of  GDP  by  2019.  At  the  same  time,  the  sizeable 
public  investment  backlog  remains  though  investment  has  increased  for  some  years.  Overall 
unemployment, as well as youth and long-term unemployment is historically very low, even if further 
improvements of the labour market situation halted.  

Overall,  the  economic  reading  highlights  issues  relating  to  the  persistent  surplus  of  savings  over 
investment, reflected in the high but gradually declining current account surplus, underlining the need 
for  continued  rebalancing.  Therefore,  the  Commission  finds  it  useful,  also  taking  into  account  the 
identification  of  imbalances  in  February,  to  examine  further  the  persistence  of  imbalances  or  their 
unwinding.  

Estonia: In the previous round of the MIP, no macroeconomic imbalances were identified in Estonia. In 
the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative  threshold,  namely  the  real 
effective exchange rate and the nominal unit labour cost growth.  

The  current  account  balance  shows  a  stable  surplus 
while the negative net international investment position 
improved. The real effective exchange rate appreciation 
accelerated  in  2018  pushing  the  indicator  beyond  the 
threshold.  Unit  labour  cost  growth  has  also  further 
accelerated  driven  by  domestic  price  and  wage 
pressures, in particular in the public sector, reflecting the 
tight  labour  market.  There  have  been  small  cumulated 
gains in export market shares. Public and private sector 
borrowing and debt levels are relatively low. Moreover, 
private  sector  debt  has  continued  falling,  reflecting 
remaining  deleveraging  dynamics.  Real  house  price 
growth has slowed to moderate levels. The tight labour 
market  is  reflected  in  a  relatively  low  unemployment 
level and a very high activity rate in EU perspective. 

Overall, the economic reading highlights issues related 
to  the  nominal  unit  labour  costs  and  the  real  effective  exchange  rate,  but  risks  appear  contained. 
Therefore, at this stage the Commission will not carry out further in-depth analysis in the context of the 
MIP. 

40 

Graph A6: Decomposition of unit labour costSource: Commission services-10-505101520080910111213141516171819fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28Estonia 
 
 
 
 
 
 
Ireland: In February 2019, the Commission concluded that Ireland was  experiencing macroeconomic 
imbalances, in particular involving vulnerabilities from large stocks of public and private debt and net 
external  liabilities.  In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative 
threshold, namely the net international investment position (NIIP), private debt, public debt as well as 
real house price growth.  

The  current  account  went  from  a  broadly  balanced 
position in 2017 to a large surplus in 2018. This large 
swing mainly reflects activities of multinational firms. 
A  modified  current  account  balance  measure,  which 
better reflects domestic economic activity, suggests a 
smaller  surplus  in  2018.  The  NIIP  remains  highly 
negative,  also  due  to  the  activities  of  multinational 
companies  and  a  large  financial  offshore  centre  with 
limited connections to the domestic economy. On the 
back  of  strong  economic  growth,  the  ratio  of  public 
debt  to  GDP  is  falling  but  the  level  of  debt  remains 
high.  Private  debt  is  still  very  high,  although  it  has 
continued  to  decline.  Households  have  continued 
reducing their debt and Irish banks have lowered their 
exposures 
suggesting 
continued  corporate  deleveraging.  While  real  house 
price  growth  continued  in  2018  it  decelerated  significantly  during  the  year.  However,  housing 
affordability remains a concern. The non-performing loans ratio has been steadily declining over the last 
years  and  banks  are  well  capitalised,  but  provisioning  levels  are  relatively  low.  Banks’  profitability, 
albeit  still subdued, is improving  gradually.  Unemployment  keeps  decreasing  and  is  approaching  pre-
crisis levels. 

to  domestic 

companies, 

Overall, the economic reading of the scoreboard highlights issues related to the volatility of the external 
position  and  the  stock  of  private  and  public  debt  as  well  as  the  housing  market.  Therefore,  the 
Commission finds it opportune, also taking into account the identification of imbalances in February, to 
examine further the persistence of imbalances or their unwinding. 

Greece:  In  February  2019,  the  Commission  concluded  that  Greece  was  experiencing  excessive 
macroeconomic imbalances, in particular involving high government indebtedness, a negative external 
position  and  a  high  share  of  non-performing  loans,  in  a  context  of  high,  although  declining, 
unemployment and low potential growth. In the updated scoreboard, a number of indicators are beyond 
the  indicative  threshold,  namely  the  net  international  investment  position  (NIIP),  the  general 
government gross debt, as well as the unemployment rate.  

41 

Graph A7: Household debt and house price indexTotalSource: Eurostat and ECB5070901101301501700204060801001201400809101112131415161718House price index, 2015=100Household debt, % of GDPIrelandOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
in  highly  concessional 

Greece’s deeply negative external asset position  largely 
consists  of  net  debt  liabilities,  in  particular  external 
public  debt,  which  is  held  mostly  by  official-sector 
terms.  Moderate 
creditors 
nominal  GDP  growth  and  a  negative  current  account 
balance  that  widened  in  2018,  are  preventing  the  high 
stock of net external liabilities from adjusting at a faster 
rate. Nominal unit labour costs showed positive growth 
in 2018 in the context of flat labour productivity growth. 
Wage  increases  led  to  a  further  increase  in  the  real 
effective exchange rate while there were gains of export 
market shares in 2018 for a second year in a row. Public 
debt  is  very  high,  although  it  is  projected  to  gradually 
decline  in  the  next  years  while  its  sustainability  is 
underpinned  by  the  debt  relief  measures  that  were 
agreed by European partners in 2018. Real house prices 
started to pick up in 2018 following a decade of price declines. Private sector credit growth is negative 
as  deleveraging  continues,  while  the  high  stock  of  non-performing  loans  is  slowly  unwinding. 
Unemployment is declining but remains very high, notably the long-term and youth unemployment.  

Overall, the economic reading highlights issues linked to the high public debt, the negative international 
investment position, and the high stock of non-performing loans, all in a context of high unemployment, 
low productivity growth and sluggish investment activity. Therefore, the Commission finds it useful, also 
taking  into  account  the  identification  of    excessive  imbalances  in  February,  to  examine  further  the 
persistence of macroeconomic risks and to monitor progress in the unwinding of excessive imbalances. 

Spain:  In  February  2019,  the  Commission  concluded  that  Spain  was  experiencing  macroeconomic 
imbalances, relating to high levels of external and internal debt, both private and public, in a context of 
high  unemployment.  In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative 
threshold,  namely  the  net  international  investment  position  (NIIP),  the  government  debt  ratio,  private 
debt, the unemployment rate as well as the decline in the 
activity rate.  

The  current  account  position  has  been  continuously  in 
surplus  although  it  narrowed  in  2018.  The  negative  NIIP 
has  kept  improving  but  remains  very  high.  Nominal  unit 
labour  costs  have  marginally  increased  in  a  context  of 
close  to  zero  productivity  growth.  Relative  gains  in  cost 
competitivness  have  been 
source  of 
competitivness  gains  since  the  crises.  Despite  some 
weakening in 2018, partly due to transitory factors, exports 
have  grown  moderately,  and  export  market  shares  have 
remained  broadly  stable.  Private  sector  debt  continued  to 
decline  throughout  2018  but  deleveraging  needs  remain. 
The decline in corporate debt to GDP ratio continued, but 
has  slowed  down  due  to  slighty  positive  growth  in  new 
credit.  For  households,  debt  to  GDP  has  continued  to 

the  main 

42 

Graph A8:NIIP, private debt and government debtSource: Eurostat-160-140-120-100-80-60-40-2000809101112131415161718050100150200250300350GreecePrivate sector debt (rhs)General government debt (rhs)Net international investment position%of GDP% of GDPGraph A9: NIIP and CA balanceSource: Commission services-10-8-6-4-2024-120-100-80-60-40-200200809101112131415161718% of  GDPSpainNet international investment positionNIIP Ex. Non-Defaultable InstrumentsCurrent account balance (rhs)% of GDP 
 
 
 
decline although credit growth turned positive in 2018. Real house prices have continued to increase and 
undervaluation  seems  to  be  coming  to  an  end.  In  recent  years,  strong  economic  growth  has  been  the 
main driver of the reduction in the general government deficit but the persistent deficits imply that the 
still high government debt ratio is only slowly decreasing. Unemployment has been declining rapidly, 
but is very high and above pre-crisis levels, especially among youth and unskilled workers.  

Overall,  the  economic  reading  highlights issues  relating  to external  sustainability,  private  and public 
debt,  in  the  context  of  high  unemployment  and  weak  productivity  growth.  Therefore,  the  Commission 
finds  it  opportune,  also  taking  into  account  the  identification  imbalancess  in  February,  to  examine 
further the persistence of imbalances or their unwinding.  

France:  In  February  2019,  the  Commission  concluded  that  France  was  experiencing  macroeconomic 
imbalances in particular involving high public debt and weak competitiveness dynamics in a context of 
low productivity growth.  In the updated scoreboard,  a number of indicators are beyond the indicative 
threshold, namely general government and private sector debt.  

The  current  account  records  a  contained  and  stable 
deficit while the  net international investment position is 
mildly negative. Export market shares remained stable in 
2018, both on a yearly basis and based on the five-year 
indicator.  The  growth  in  unit  labour  costs  has  been 
contained  and  below  the  euro  area  average  although 
labour  productivity  growth  is  low.  Government  debt 
stabilised at a record high level in 2018, confirming that 
fiscal  space  to  respond  to  future  shocks  is  limited. 
Private credit flows remained relatively dynamic so that 
the  high  private  sector  debt-to-GDP  ratio  slightly 
increased. Non-financial companies’ debt was above the 
level  suggested  by  fundamentals  while  households' 
indebtedness  was  more  contained.  Real  house  prices 
have  increased  at  moderate  but  steady  pace  in  recent 
years  and  signs  of  potential  overvaluation  remain.  The 
banking sector appears resilient but the combination of high public and private debt ratios may induce 
risks. Moreover, the prevailing low interest rates may weigh on banks’ profitability. The unemployment 
rate  has  declined  further  and  is  now  below  the  threshold.  Long-term  and  youth  unemployment  kept 
improving. 

Overall,  the  economic  reading  highlights  issues  relating  to  high  indebtedness  and  weak,  although 
stabilised, competitiveness, in a context of low productivity growth. Therefore, the Commission finds it 
opportune, also taking into account the identification of imbalances in February, to examine further the 
persistence of imbalances or their unwinding. 

43 

Graph A10: Debt across sectors in the economySource: Eurostat0501001502002503000809101112131415161718% of GDPFranceGovernmentNon financial corporationsHouseholdMIP Threshold for private debt 
 
 
  
 
 
 
 
Croatia: In February 2019, the Commission concluded that Croatia was experiencing  macroeconomic 
imbalances,  relating  to  high  levels  of  public,  private  and  external  debt  in  a  context  of  low  potential 
growth. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely 
the net international investment position (NIIP), public debt, the unemployment rate and the decline in 
the activity rate.   

The  negative  NIIP  has  significantly  narrowed  in  line 
with  continuous  current  account  surpluses  but  remains 
large. Unit labour costs growth turned positive in 2018 
as labour productivity growth was very low. There have 
been  continuous  gains  in  export  market  shares  since 
2013  but  they  are  declining.  Government  debt  is  high 
but  on  a  downward  trend,  supported  by  small  fiscal 
surpluses.  Household  and  corporate  debt  continues  to 
fall, but remain relatively high. In general, a substantial 
share  of  debt  is  denominated  in  foreign  currency, 
generating  exchange  rate  risks.  While  subdued  credit 
growth  contributes  to  the  reduction  in  private  debt 
levels,  the  increased  use  of  general-purpose  cash  loans 
among  households  raises  concerns.  At  the  same  time, 
the  financial  sector  is  burdened  by  high,  although 
declining,  levels  of  non-performing  loans  and  some 
foreign currency exposure. The unemployment rate has been falling rapidly but remains relatively high. 
The  activity  rate is  persistently  low,  while  the  working  age  population  shrinks.  This, compounded  by 
low productivity growth, especially for a catching-up economy, hampers potential growth. 

Overall, the economic reading highlights issues relating to the stock of external liabilities, public and 
private  debt,  and  high  NPLs  in  a  context  of  still  high  unemployment  and  low  productivity  growth. 
Therefore, the Commission finds it opportune, also taking into account the identification of imbalances 
in February, to examine further the persistence of imbalances or their unwinding. 

Italy: In February 2019, the Commission concluded that 
Italy  was  experiencing  excessive  macroeconomic 
imbalances, in particular involving risks stemming from 
the  very  high  public  debt  and  protracted  weak 
productivity  growth  in  a  context  of  still  high  non-
performing loans (NPLs) and high unemployment. In the 
the 
scoreboard,  government  debt 
updated 
unemployment rate still exceed the indicative threshold.  

and 

The  external  position  is  stable  as  the  net  international 
investment  position  is  close  to  balance  and  the  current 
account is in surplus. Part of the current account surplus 
is  related  to  subdued  domestic  demand  and  low  wage 
growth.  Stagnant  productivity  growth  weighs  on  non-
cost  competitiveness  and  potential  GDP  growth,  which 
in 
turn  hampers  public  debt  deleveraging.  Low 
productivity  growth  is  due  to  low  investment  and 

44 

Graph A.12: Potential growth and public debt  Source: Commission services020406080100120140160-1.5-1.0-0.50.00.51.01.50506070809101112131415161718% of GDPRate of change y-o-y (%)Capital accumulation contributionTFP contributionTotal labour (hours) contributionPotential growthGeneral government debt (rhs)ItalyGraph A11: NIIP, private debt and government debtSource: Eurostat-120-100-80-60-40-2000809101112131415161718050100150200CroatiaPrivate sector debt (rhs)General government debt (rhs)Net international investment position%of GDP% of GDP 
 
 
 
innovation  levels,  a  non-supportive  business  environment,  financing  constraints,  lack  of  high-skilled 
people,  as  well  as  to  sectoral  shifts.  Unit  labour  cost  growth  is  contained  and  export  market  shares 
broadly  stable.  The  government  debt-to-GDP  ratio  increased  in  2018  and  risks  to  further  increase  in 
2019  due  to  the  weak  economic  outlook  and  a  worsening  primary  balance.  On  the  positive  side, 
sovereign yields have gone down substantially. Banks’ balance sheet repair has substantially progressed 
as the non-performing loan stock has fallen, but lending to non-financial firms remains weak. Financial 
sector  vulnerabilities  remain,  in  particular  for  small  and  medium  banks,  which  still  hold  large  legacy 
stocks of non-performing loans and are more exposed to sovereign risk than larger ones. Unemployment 
and  employment  levels  have  evolved  favourably.  However,  the  unemployment  level,  in  particular  for 
young people and the long-term unemployed remain high, while  labour market participation, especially 
of women remains low, with risks for future employability and growth.  

Overall,  the  economic  reading  highlights  issues  relating  to  the  high  level  of  public  debt,  weak 
productivity growth and labour market performance and banking sector vulnerabilities, contributing to 
low potential growth which in turn hamper public debt deleveraging. Therefore, the Commission finds it 
opportune, also taking into account the identification of excessive imbalances in February, to examine 
further the persistence of macroeconomic risks and to monitor progress in the unwinding of excessive 
imbalances. 

Cyprus:  In  February  2019,  the  Commission  concluded  that  Cyprus  was  experiencing  excessive 
macroeconomic  imbalances  in  particular  involving  a  very  high  share  of  non-performing  loans,  high 
stocks of private, public, and external debt in a context of still relatively high unemployment and weak 
potential  growth.  In  the  updated  scoreboard,  a  number  of  indicators  remain  beyond  the  indicative 
thresholds, namely the current account balance, the net international investment position (NIIP), private 
sector debt, government debt and the unemployment rate.  

is  not  conducive 

The current account deficit remained significantly negative 
in  2018,  reflecting  strong  domestic  demand  and  negative 
savings  among  households.  The  dynamics  of  the  current 
account 
to  ensure  a  prudent  net 
international investment position, even taking into account 
the  presence  of  special  purpose  entities.  Unit  labour  cost 
growth has been contained while export market shares are 
stable in 2018. Private debt is among the highest in the EU 
both for households and corporates and credit flows remain 
positive. The ratio of non-performing loans in the banking 
sector  declined  significantly  in  2018,  but  remains  very 
high.  The  government  support  in  the  sale  of  the  Cyprus 
Cooperative  Bank  had  a  one-off  increasing  impact  on 
public  debt  in  2018.  Looking  forward,  public  debt  is 
expected  to  resume  its  declining  path  on  the  back  of  a 
continued  supportive  fiscal  performance.  Unemployment 
keeps falling and is expected to continue contracting amid strong economic growth. 

Overall,  the  economic  reading  highlights  issues  relating  to  external  debt  sustainability,  public  and 
private debt and vulnerabilities in the financial sector. Therefore, the Commission finds it useful, also 
taking  into  account  the  identification  of  excessive  imbalances  in  February,  to  examine  further  the 
persistence of macroeconomic risks and to monitor progress in the unwinding of excessive imbalances. 

45 

Graph A13: Debt and non-performing loansSource: Eurostat and ECB01020304001002003004005000809101112131415161718% of GDPCyprusGeneral GovernmentHouseholdsNon-financial corporationsNon-performing loans (rhs)% of total loans 
 
 
 
Latvia: In the previous round of the MIP, no macroeconomic imbalances were identified in Latvia. In 
the  updated  scoreboard,  a  number  of  indicators  are  above  the  indicative  threshold,  namely  the  net 
international investment position (NIIP), unit labour cost 
growth, and real house price growth.  

The current account fell back into a small deficit in 2018 
but the negative NIIP, mainly reflecting government debt 
and  FDI,  continued  to  improve  relatively  rapidly.  Cost 
competitiveness  indicators  seems  to  weaken  as  the  real 
effective exchange rate appreciated and unit labour costs 
continued  to  grow  relatively  strongly  driven  by  steady 
wage  growth.  The  pressure  on  wages  is  expected  to 
persist  due  to  the  shrinking  labour  force.  Meanwhile, 
export  market  share  growth  has  slowed  but  cumulated 
gains  remain  positive.  Real  house  price  growth  is 
dynamic  and  accelerated  somewhat  in  2018,  warranting 
attention to pressures in the housing market even if there 
are  yet  no  clear  signs  of  house  market  overvaluation. 
Private  debt  deleveraging  continues  as  credit  growth 
remains  subdued  while  public  debt is  low  and  declining 
moderately.  On  the  labour  market  side,  unemployment 
moves further downwards and the activity rate have kept increasing.  

Overall,  the  economic  reading  highlights  issues  relating  to  labour  supply  pressures  and  cost 
competitiveness, but risks appear contained. The Commission will at this stage not carry out further in-
depth analysis in the context of the MIP. 

Lithuania:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  in 
Lithuania. In the updated scoreboard, a number of indicators are above the indicative threshold, namely 
the  real  exchange  rate  and  nominal  unit  labour  cost 
growth. 

The current account is broadly in balance while the NIIP, 
reflecting  mainly  government  debt  and  FDI,  has 
continued  to  improve  and  is  now  within  the  threshold. 
Unit labour costs has continued to grow at relatively high 
rates driven by high wage growth reflecting a tight labour 
market  and  some  regulatory  changes, 
including  a 
relatively fast increase in the minimum wages since 2016. 
In  addition,  the  real  effective  exchange  rate  appreciated 
relatively strongly in 2018 moving beyond the threshold. 
Going  forward,  however,  risks  seem  mitigated  because 
nominal  wage  growth  is  moderating  while  productivity 
growth  remains  healthy.  Gains  in  export  market  shares 
have  continued  at  a  solid  pace.  Public  and  private  debt 
levels  continue  to  be  relatively  low  and  stable  with 
positive  credit  growth.  Real  house  price  increases  have 

46 

Graph A15: Decomposition of unit labour costSource: Commission services-15-10-5051015080910111213141516171819fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28LithuaniaGraph A14: Decomposition of unit labour costSource: Commission services-15-10-50510152025080910111213141516171819fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28Latvia 
 
 
 
 
been pronounced but remain within the scoreboard threshold. Unemployment remains low.  

Overall,  the  economic  reading  highlights  issues  relating  to  cost  competitiveness,  but  risks  appear 
contained at this stage. The Commission will at this stage not carry out further in-depth analysis in the 
context of the MIP. 

Luxembourg:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  in 
Luxembourg. In the updated scoreboard private sector debt is beyond the indicative threshold. 

The external position is characterised by broadly stable current 
account  surpluses  and  a  positive  net  international  investment 
position.  Cumulated  gains  in  export  market  shares  have 
narrowed  while  unit  labour  cost  growth  has  been  relatively 
strong.  For  many  consecutive  years,  real  house  prices  have 
continued  to  grow  at  a  relatively  high  rate  and  warrant  close 
attention.  House  price  growth  is  underpinned  by  the  dynamic 
labour market combined with the sizeable net migration flows 
and  favourable  financing  conditions,  while  supply  has 
remained 
corporate 
indebtedness  is  mostly  related  to  cross-border  intracompany 
loans.  Household  debt,  which  is  mostly  mortgage  debt,  has 
reached  relatively  high  levels  reflecting  the  increase  in  house 
prices.  Risks  for  financial  stability  are  mitigated  by  the 
soundness  of  the  banking  sector.  Furthermore,  the  labour 
market  is  robust  with  strong  job  creation  and  unemployment 
stabilising at relatively low levels. Public debt remains very low. 

constrained.  The  high 

relatively 

Overall,  the  economic  reading  points  mainly  to  issues  related  to  increasing  housing  prices  and 
household  debt  although  risks  appear  contained  at  this  stage.  Therefore,  the  Commission  will  at  this 
stage not carry out further in-depth analysis in the context of the MIP. 

Hungary:  In  the  previous  round  of  the  MIP,  no 
for 
imbalances  were 
macroeconomic 
Hungary.  In  the  updated  scoreboard,  a  number  of 
indicators  are  beyond  the  indicative  threshold,  namely 
the  net  international  investment  position  (NIIP),  unit 
labour  cost  growth,  real  house  price  growth  and 
government debt.  

identified 

The  negative  NIIP  shows  sustained  improvement  but 
the  current  account  surplus  is  being  eroded  due  to 
strong  import  growth.  Risks  from  domestic  demand 
pressures warrant attention. Unit labour cost growth has 
been very dynamic, as productivity growth lags behind 
substantial wage rises, driven by the tight labour market 
and  administrative  measures.  Appreciation  of  the  real 

47 

Graph A16: Household debt and house price indexSource: Eurostat and ECB50607080901001101200102030405060700809101112131415161718House price index, 2015=100Household debt, % of GDPLuxembourgOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs)Graph A17: Decomposition of unit labour costSource: Commission services-10-8-6-4-20246810080910111213141516171819fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28Hungary 
 
 
  
 
effective  exchange  rate  has  been  mitigated  so  far  by  a  gradual  nominal  currency  depreciation.  Still, 
temporary  disruptions  in  the  automotive  industry  and  its  value  chain  stalled  the  growth  of  the  export 
market share in recent years and the large role of this sector may represent a risk over the longer term. 
Real house prices continued to grow rapidly. New lending volumes are increasing, but private debt as a 
percentage of GDP continues to decrease because of the gradual amortisation of previously accumulated 
stocks. Government debt is declining only slowly due to the pro-cyclical fiscal stance in recent years. 
Unemployment decreased further in 2018 as the labour market remains tight. 

Overall, the economic reading highlights issues relating to unit labour costs, the housing market and 
possible  risks  from  the  exposure  to  the  automotive  industry.  However,  short-term  risks  appear 
contained. Therefore, the Commission will keep monitoring the situation but does not see it necessary at 
this stage to carry out further in-depth analysis in the context of the MIP. 

Malta: In the previous round of the MIP, no macroeconomic imbalances  were identified in Malta. In 
the updated scoreboard, the current account surplus indicator is beyond the indicative threshold. 

The  current  account  surplus  remained  very  elevated  in 
2018  similar  to  the  level  seen  in  2017.  The  net 
international  investment  position  declined  marginally, 
but remains strongly positive reflecting the presence of 
internationally-oriented  financial  business  and  online 
gaming  activity.  Moderate  wage  developments  are  the 
main factor behind the continued subdued nominal unit 
labour  cost  growth.  The  real  effective  exchange  rate 
appreciated  slightly.  Private  sector  debt  continued  to 
decrease 
in  2018,  underpinned  mainly  by  strong 
nominal  GDP  growth.  While  credit  flow  to  the  non-
financial  sector  is  expanding,  credit  to  households  was 
broadly stable until 2018. The government debt-to-GDP 
ratio continued to decline. The steady increases in house 
prices  accelerated  slightly  in  2018,  while  there  are  not 
yet  consistent  signs  of  overvaluation.  Financial  sector 
liabilities  declined  in  2018  and  there  are  no  evident  signs  of  fragility  in  the  banking  sector  given  the 
existing  capital  buffers.  The  labour  market  continues  to  perform  well,  with  declining  unemployment, 
including long-term unemployment, and increasing activity rates.  

Overall, the economic reading points to a very elevated current account balance and relatively dynamic 
house price growth, while risks appear contained at this stage. Overall, the Commission does not see it 
necessary at this stage to carry out further in-depth analysis in the context of the MIP. 

48 

Graph A18: Household debt and house price indexSource: Eurostat and ECB50607080901001101200102030405060700809101112131415161718House price index, 2015=100Household debt, % of GDPMaltaOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
 
 
The Netherlands: In February 2019, the Commission concluded that the Netherlands was experiencing 
macroeconomic  imbalances,  in  particular  involving  a  high  stock  of  private  debt  and  the  large  current 
account surplus. In the updated scoreboard a number of indicators are beyond the indicative threshold, 
namely the current account balance, private sector debt and real house price growth.  

The current account surplus is very high and remains well 
above  the  scoreboard  threshold.  All  economic  sectors  – 
household,  government  and  corporate  –  contribute  to  the 
surplus.  The  increase  in  recent  years  was  mainly  driven 
by  non-financial  corporations,  with  a  savings  surplus 
related  to  relatively  high  corporate  profitability  and  a 
comparatively low domestic investment rate. Unit labour 
cost  growth  has  been  contained  as  wage  growth  has 
picked  up  but  remains  moderate  while  productivity 
growth  has  stalled.  Private  debt  as  a  share  of  GDP 
continues to gradually decline, but remains well above the 
scoreboard threshold. The high level of corporate debt is 
intra-group  debt  of 
the 
principally  driven  by 
multinationals.  In  particular  household  debt is  very  high, 
mainly linked to a generous tax treatment of mortgages on 
owner-occupied  homes  and  a  sub-optimally  functioning 
rental market. While household debt as a share of GDP is on a decreasing trend, nominal debt continued 
to grow in 2018 as the strong housing market recovery accelerated further. As a result, real house price 
growth  increased  in  2018 and  reached a level  beyond  the  scoreboard threshold.  The  government  debt 
ratio is relatively low and falling. Unemployment has also reduced with strong employment growth. 

Overall, the economic reading highlights issues relating to the high household debt, in turn linked to the 
housing market, and the large domestic savings surplus. Therefore, the Commission finds it opportune, 
also taking into account the identification of imbalances in February, to examine further the persistence 
of imbalances or their unwinding. 

Austria:  In  the  previous  round  of  the  MIP,  no 
macroeconomic  imbalances  were  identified  in  Austria. 
the  government  debt 
In 
indicator is beyond the indicative threshold. 

the  updated  scoreboard, 

The  current  account  surplus  remained  moderate  and 
broadly  stable  in  2018  and  the  net  international 
investment  position  remained  marginally  positive. 
There  were  some  gains  in  export  market  shares.  Unit 
labour cost increased as wages grew more strongly than 
labour  productivity  but  remained  overall  relatively 
contained.  Real  house  prices  continued  their  upward 
trend but growth decelerated further. While this warrant 
monitoring,  the  price  increase  does  not  appear  to  be 
credit-driven. Meanwhile, both corporate and household 
debt ratios are continuing to decrease. Government debt 

49 

Graph A19: Net lending/borrowing by sectorSource: Eurostat-50510150809101112131415161718% of GDPThe NetherlandsHouseholdsGeneral governmentFinancial corporationsNon-financial corporationsTotal EconomyGraph A20: Household debt and house price indexSource: Eurostat and ECB506070809010011012001020304050600809101112131415161718House price index, 2015=100Household debt, % of GDPAustriaOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
continued also its downward path on the back of strong economic growth and the ongoing asset wind-
down from nationalised financial institutions. The banking sector situation improved further also linked 
to  the  recovery  in  neighbouring  countries.  In  these  favourable  economic  conditions  and  with  strong 
employment growth, the unemployment rate decreased notably.  

Overall,  the  economic  reading  highlights  issues  relating  to  the  housing  sector,  but  risks  appear 
contained.  Therefore,  the  Commission  does  not  see  it  necessary  at  this  stage  to  carry  out  further  in-
depth analysis in the context of the MIP. 

Poland: In the previous round of the MIP, no macroeconomic imbalances were identified in Poland. In 
the  updated  scoreboard,  the  net  international  investment  position  (NIIP)  is  beyond  the  indicative 
threshold.  

The current account balance turned from a small surplus 
in  2017  to  a  slight  deficit  in  2018,  while  the  negative 
NIIP  narrowed  visibly,  yet  remaining  beyond  the 
threshold.  External  vulnerabilities  remain  contained, 
given that foreign direct investment accounts for a major 
part of foreign liabilities. Further gains in export market 
shares were recorded in 2018. Nominal unit labour costs 
increased  at  a  modest  pace,  as  robust  wage  hikes  were 
counter  balanced  by  strong  productivity  growth.  The 
growth of house prices strengthened  in 2018, remaining 
below, but close to the threshold. The private sector debt-
to-GDP  ratio 
in  2018.  General 
government  debt,  measured  as  percentage  of  GDP, 
decreased  further  from  already  relatively  low  levels  on 
the back of fast nominal GDP growth and a low headline 
deficit. The banking sector is relatively well capitalised, 
liquid  and  profitable,  although  the  declining  but  still  sizeable  stock  of  foreign-currency  denominated 
loans remains a vulnerability. The favourable labour market situation continued, resulting in a further 
decline in the unemployment rate to a very low level. 

is  broadly  stable 

Overall, the economic reading highlight issues related to the net international investment position but 
risks are limited. Thus, the Commission does not see it necessary at this stage to carry out further in-
depth analysis in the context of the MIP. 

50 

Graph A21: NIIP and CA balanceSource: Commission services-8-6-4-202-80-60-40-200200809101112131415161718% of GDP% of GDP PolandNet international investment positionNIIP Ex. Non-Defaultable InstrumentsCurrent account balance (rhs) 
 
 
 
 
 
 
Portugal: In February 2019, the Commission concluded that Portugal was experiencing macroeconomic 
imbalances,  in  particular involving  the  large  stocks of  net  external  liabilities, private  and  public  debt, 
and  a  high  share  of  non-performing  loans  in  a  context  of  low  productivity  growth.  In  the  updated 
scoreboard,  a  number  of  indicators  are  beyond  the  indicative  threshold,  namely  the  net  international 
investment position (NIIP), government debt, private debt, and real house price growth. 

The external position is vulnerable as the NIIP is deeply 
negative and the pace of adjustment is very slow while 
the  current  account  balance  has  deteriorated.  Price 
competitiveness  has  deteriorated  slightly  over  recent 
years  due  to  the  increase  in  unit  labour  costs  while 
exporters  continue  to  gain  market  shares,  albeit  at  a 
slowing  pace.  Labour  productivity  remains  low  and  is 
projected  to  improve  only  marginally  in  the  coming 
years, hampering catching-up with more advanced euro 
area  economies.  Private  sector  debt  deleveraging 
continues  although  debt  levels  are  relatively  high  both 
for corporates and households. Government debt, while 
still  very  high,  is  projected  to  retain  a  gradual 
downward  path. The  banking  sector is  becoming  more 
resilient  although  the  stock  of  non-performing  loans 
its  substantial 
remains  a  concern  notwithstanding 
decline  in  2017  and  2018.  House  prices  keep  growing  strongly  and  have  accelerated,  particularly  in 
market segments affected by tourism-related activities. However, the mortgage stock is broadly stable 
and construction activities are gradually catching up with demand. The labour market has continued to 
improve and the unemployment rate is now within the threshold. 

Overall, the economic reading highlights issues relating to imbalances in stock variables, in particular 
external,  public  and  private  debt,  banking  sector  vulnerabilities  and  weak  productivity  growth. 
Therefore, the Commission finds it opportune, also taking into account the identification of imbalances 
in February, to examine further the persistence of imbalances or their unwinding. 

in  particular 

Romania: In February 2019, the Commission concluded 
experiencing  macroeconomic 
that  Romania  was 
imbalances, 
risk  of  cost 
competitiveness  losses,  a  continued  deterioration  of  the 
external  position  and  risks  to  financial  stability.  In  the 
updated  scoreboard,  two  indicators  are  beyond  the 
threshold,  namely 
investment 
the  net 
position (NIIP) and  nominal unit labour cost growth. 

international 

involving 

The  large  current  account  deficit  continued  to  widen  in 
2018  driven  by  high  import  and  slowing  export  growth. 
The  negative  NIIP,  which  consists  mostly  of  FDI, 
improved  in  2018  on  the  back  of  strong  nominal  GDP 
growth. Exports continued to perform well in 2018, with 
further  gains  in  export  market  shares.  Unit  labour  cost 
growth  accelerated  sharply  in  2018  due  to  strong  wage 

51 

Graph A23: Decomposition of unit labour costSource: Commission services-15-10-50510152025303540080910111213141516171819fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28RomaniaGraph A22: NIIP, Private debt and government debtSource: Eurostat-140-120-100-80-60-40-2000809101112131415161718050100150200250300350% of GDP% of GDPPortugalPrivate sector debt (rhs)General government debt (rhs)Net international investment position 
 
 
 
growth, particularly in the public sector. Past evidence suggests that public wage growth is likely to spill 
over  to  the  private  sector,  which  could  trigger  cost  competitiveness  losses.  Private  debt  is  low  and 
continued to decrease, while credit growth to the private sector is subdued. The business environment is 
affected by frequent and unpredictable legislative changes often adopted without impact assessment or 
stakeholder consultation. Government debt, as a percentage of GDP, is relatively low but is no longer 
decreasing. In the housing market, real house price growth continued to decelerate in 2018 and remains 
moderate.  Banks  are  well  capitalized  and  liquid.  Risks  to  financial  stability  stemming  from  past 
legislation  appear  to  have  abated,  although  policy  and  legislative  instability  remains  a  concern.  The 
declining unemployment rate in 2018 reflects the continued tightening of the labour market, while the 
activity rate, although at very low levels, continued to improve.  

Overall, the economic reading highlights issues relating to strongly increasing unit labour costs and the 
deteriorating external position. Therefore, the Commission finds it opportune, also taking into account 
the identification of imbalances in February, to examine further the persistence of imbalances or their 
unwinding. 

Slovenia: In the previous round of the MIP, no macroeconomic imbalances were identified in Slovenia. 
In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the public 
sector debt and house price growth. 

low  and 

The current account continues to show a strong surplus 
contributing  to  a  further  narrowing  of  the  negative  net 
international  investment  position.  Wage  increases  have 
labour  productivity  has 
been  relatively 
improved, resulting in contained unit labour cost growth 
while  gains  in  export  market  shares  have  continued. 
Private sector debt is relatively low and falling. Private 
sector credit growth turned positive in 2017 but remains 
muted. Investment is below the EU average, particularly 
regarding  residential  construction.  House  price  growth 
remains  high  in  a  context  of  supply  shortages,  which 
warrant  attention.  Although  government  debt-to-GDP 
ratio is high, it is on a clear downward trend. However, 
projected  ageing  costs  put  pressure  on  medium  and 
long-term  fiscal  sustainability.  The  banking  sector  is 
stable  and  the share  of non-performing  loans  continues 
its downward trend. Regarding the labour market, unemployment keeps falling, with the activity rate at 
a previously unseen high.  

Overall, the economic reading highlights issues relating mainly to fiscal sustainability and house price 
growth,  although  risks  seem  contained  at  this  stage.  Therefore,  the  Commission  does  not  see  it 
necessary at this stage to carry out further in-depth analysis in the context of the MIP. 

52 

Graph A24: Household debt and house price indexSource: Eurostat and ECB5060708090100110120130140150051015202530350809101112131415161718House price index, 2015=100household debt, % of GDPSloveniaOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
 
 
Slovakia: In the previous round of the MIP, no macroeconomic imbalances were identified in Slovakia. 
In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the net 
international investment position (NIIP) and nominal unit labour cost growth. 

The  current  account  deficit  widened  somewhat  in  2018  but 
remains moderate. The NIIP is strongly negative but stable, 
while  risks  are  limited  in  view  of  the  large  inward  FDI 
stocks  which  stem  from  the  expanding  automotive  industry 
and  the  financial  sector.  Still,  temporary  disruptions  in  the 
automotive  industry  and  the  large  role  of  this  sector  may 
represent a risk over the longer term.  Export market shares 
showed  some  gains  and  the  real  effective  exchange  rate 
appreciated slightly after years of moderation. Nominal unit 
labour  cost  growth  accelerated  markedly,  driven  by  strong 
wage growth in the context of a very tight labour market and 
significant 
the 
threshold. House prices rose noticeably in 2018 although an 
overvaluation  is  not  yet  evident.  The  buoyant  housing 
market has contributed to a continued rise in the household 
debt  although  from  relatively  low  levels.  The  largely 
foreign-owned banking sector is well-capitalised. Further declines in total and long-term unemployment 
rates have been accompanied by increases in the participation rate.  

labour  shortages  and 

is  now  beyond 

Overall,  the  economic  reading  highlights  potential  issues  relating  to  external  sustainability,  domestic 
wage pressures and possible risks from the exposure to the automotive industry. However, short-term 
risks  appear  contained.  Therefore,  the  Commission  will  at  this  stage  not  carry  out  further  in-depth 
analysis in the context of the MIP. 

Finland: In the previous round of the MIP, no macroeconomic imbalances were identified in Finland. 
In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely private 
sector debt and the change in total financial sector liabilities. 

The current account deficit widened in 2018 as the trade 
balance  reverted  to  negative  values  while  the  net 
international  investment  position  is  balanced.  Export 
market  shares  recovered  for  a  third  year  in  a  row, 
narrowing  down  cumulated  losses.  Unit  labour  costs 
recorded positive growth in 2018 and the real effective 
exchange rate appreciated slightly but developments are 
overall contained. Government debt came down further 
as  GDP  growth  outpaced  debt  growth  and  it  is  now 
within  the  threshold.  Private  debt  remains  high  but 
decreases slowly. Favourable credit conditions and low 
interest  rates  continue  to  support  private  credit  growth 
although  credit  growth  decreased  in  2018.  Household 
debt  to  GDP  is  relatively  high  and  remains  on  a  mild 
upward  path.  Real  house  prices  were  stable  in  2018. 

53 

Graph A25: Decomposition of unit labour costSource: Commission services-10-8-6-4-20246810080910111213141516171819fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28SlovakiaGraph A26: Household debt and house price indexSource: Eurostat and ECB5060708090100110010203040506070800809101112131415161718House price index, 2015=100household debt, % of GDPFinlandOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
Muted  mortgage  growth  and  the  declining  number  of  new  building  permits  reduce  risks  to  the 
sustainability  of  the  household  sector  debt.  The  financial  sector  is  well  capitalised,  limiting  risks  to 
financial  stability.  The large  increase  in  total assets and  liabilities  of  the  banking  sector  at  the  end  of 
2018  is  the  reflection  of  one  bank  moving  its  headquarters  from  Sweden  to  Finland.  While  both 
employment and unemployment strongly improved in 2018, further improvement will likely be slower. 
The long-term and youth unemployment rates came down in 2018. 

Overall,  the  economic  reading  highlights  persistent  challenges  related  to  the  private  sector  debt,  but 
risks remain limited. Overall, the Commission does not see it necessary at this stage to carry out further 
in-depth analysis in the context of the MIP.  

Sweden: In February 2019, the Commission concluded that Sweden was experiencing macroeconomic 
imbalances,  in  particular  involving  overvalued  house  price  levels  coupled  with  a  continued  rise  in 
household  debt.  In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  threshold  namely, 
private sector debt and export market shares. 

The  trend  of  a  narrowing  current  account  surplus 
continued in 2018 while the NIIP increased and is now 
clearly  in positive  territory.  Export  market  share  losses 
rose  in  2018  and  the  indicator  is  now  beyond  the 
labour  cost  growth  has 
threshold.  Nominal  unit 
accelerated  while  the  real  effective  exchange  rate  has 
depreciated  due  to  the  Krona  depreciation.  Private 
sector  debt  is  high  with  household  debt  linked  to 
mortgages  as  the  main  driver.  In  2018,  household  debt 
further increased slightly. House prices fell at the end of 
2017  but  remained  flat  over  2018,  overall  implying 
negative  growth  in  2018  on  an  annual  basis,  and  are 
overall  very  high  with  indications  of  overvaluation. 
House prices and household indebtedness imply macro-
stability risks and are being pushed up by the favourable 
tax  treatment  of  home  ownership,  very  low  mortgage 
interest rates and specific features in the mortgage market as well as supply  side restrictions implying 
risks for macroeconomic stability. Risks in the banking system appear contained, as asset quality and 
profitability remain high and household finances are generally strong, while macro-prudential policy has 
been  tightened.  In  2018,  the  labour  market  improved  further  and  unemployment  declined,  but  recent 
developments indicate a weakening.  

Overall,  the  economic  reading  highlights  issues  relating  to  high  private  debt  and  the  housing  sector. 
Therefore, the Commission finds it opportune, also taking into account the identification of imbalances 
in February, to examine further the persistence of imbalances or their unwinding. 

54 

Graph A27: Household debt and house price indexSource: Eurostat and ECB506070809010011012001020304050607080901000809101112131415161718House price index, 2015=100household debt, % of GDPSwedenOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
 
 
 
United Kingdom: In the previous round of the MIP, no macroeconomic imbalances were identified in 
the  United  Kingdom.  In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative 
threshold, namely the current account deficit, the real effective exchange rate, private sector debt and 
government debt. 

the  net 

The  already-large  current  account  deficit  widened  in 
2018,  which  gives  rise  to  sizeable  external  financing 
needs. A large deficit in goods trade and smaller deficits 
in  transfers  and  investment  income  were  only  partially 
offset  by  a  surplus  in  services  trade.  Not  withstanding 
international 
persistent  external  deficits, 
investment position is close to balance, also helped by the 
sterling  depreciation  in  2016.  However,  the  net  trade 
response  to  the  depreciating  real  effective  exchange  rate 
and  associated  improved  price  competitiveness  has  been 
disappointing  and  there  has  been  recent  export  market 
share  losses.  The  private  sector  debt-to-GDP  ratio  has 
bottomed  out  at  a  high  level,  following  a  period  of 
moderate 
particular, 
household  debt  remains  high  and  continues  to  warrant 
close  monitoring.  Real  house  prices  have  flattened  off, 
though  at  a  high  level.  Government  debt  is  high  and  broadly  stable.  Strong  employment  growth 
continued to be accompanied by low unemployment, but investment and labour productivity are weak.  

deleveraging. 

post-crisis 

In 

Overall, the economic reading highlights some issues relating to the external side of the economy and 
private  debt.  These  issues  appear  to  pose  limited  risks  to  stability  in  the  short  term.  Overall,  the 
Commission does not see it necessary at this stage to carry out further in-depth analysis in the context 
of the MIP.  

55 

Graph A28: NIIP and CA balanceSource: Commission services-10-8-6-4-20-100-80-60-40-200200809101112131415161718% of GDP United KingdomNet international investment positionNIIP Ex. Non-Defaultable InstrumentsCurrent account balance (rhs)% of GDP 
 
 
 
 
 
 
 
 
 
 
 
 
56 

Table 1.1: MIP Scoreboard 2018    Current account balance - % of GDP (3 year average)Net international investment position (% of GDP)Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)Export market share - % of world exports(5 year % change)Nominal unit labour cost index (2010=100)(3 year % change)House price index (2015=100), deflated (1 year % change) Private sector credit flow, consolidated (% of GDP)Private sector debt, consolidated (% of GDP)General government gross debt (% of GDP)Unemployment rate (3 year average)Total financial sector liabilities, non-consolidated(1 year % change)Activity rate - % of total population aged 15-64(3 year change in pp)Long-term unemployment rate - % of active population aged 15-74(3 year change in pp)Youth unemployment rate - % of active population aged 15-24(3 year change in pp)Thresholds-4/6%-35%±5% (EA)±11% (Non-EA)-6%9% (EA) 12% (Non-EA)6%14%133%60%10%16.5%-0.2 pp0.5 pp2 ppBE0.3 41.3 6.9 -1.5 3.7 1.0 0.8 178.5 100.0 7.0b-2.9 1.0 -1.5 -6.3 BG4.0 -35.2 3.9 13.4 18.3p4.5 3.9 95.0 22.3 6.3 6.8 2.2 -2.6 -8.9 CZ1.2 -23.5 11.0 11.9 13.5 6.1p5.3 70.7 32.6 3.0 7.4 2.6 -1.7 -5.9 DK7.5 48.5 2.6 -1.5 4.0 3.5 2.4 199.4 34.2 5.6 -4.7 0.9 -0.6 -1.6 DE8.0 62.0 5.3 3.1 5.6 5.1 6.6 102.4 61.9 3.8 2.0 1.0 -0.6 -1.0 EE2.1 -27.7 7.7 0.8 14.3 2.1 3.7 101.5 8.4 6.0 6.9 2.4 -1.1 -1.2 IE2.3 -165.0 2.3 77.4 -2.8 8.3 -7.8 223.2 63.6 7.0 5.1 0.8 -3.2 -6.4 EL-2.2 -143.3 3.6 6.9 1.4p1.3e-1.1p115.3p181.2 21.5 -5.0 0.4 -4.6 -9.9 ES2.6 -80.4 4.1 4.6 0.7p5.3 0.4p133.5p97.6 17.4 -2.2 -0.6 -5.0 -14.0 FR-0.6 -16.4 4.5 -0.2 2.4p1.5 7.9p148.9p98.4 9.5 1.6 0.6 -0.8 -4.0 HR2.4 -57.9 4.2 22.9 -2.4d4.6 2.3p94.0p74.8 10.9 4.6 -0.6 -6.8 -18.9 IT2.6 -4.7 3.3 0.3 2.7 -1.6 1.6 107.0 134.8 11.2 -0.1 1.6 -0.7 -8.1 CY-4.6 -120.8 1.8 16.6 -0.4p0.2 8.4p282.6p100.6 10.8 0.3 1.1 -4.1 -12.6 LV0.6 -49.0 4.9 8.6 14.7 6.6 -0.2 70.3 36.4 8.6 -3.0 2.0 -1.4 -4.1 LT-0.1 -31.0 6.4 3.5 16.5 4.6 4.3 56.4 34.1 7.1 8.2 3.2 -1.9 -5.2 LU4.9 59.8 3.3 10.7 7.9 4.9 -0.5 306.5 21.0 5.8 -2.0 0.2b-0.5 -2.5 HU2.1 -52.0 2.0 8.4 12.4 10.9 4.3 69.3 70.2 4.3 -9.2 3.3 -1.7 -7.1 MT8.9 62.7 4.9 24.0 3.2 5.1p7.5 129.8 45.8 4.1 2.3 5.9 -1.3 -2.5 NL9.9 70.7 3.2 1.7 3.0p7.4 4.5p241.6p52.4 4.9 -3.3p0.7 -1.6 -4.1 AT2.2 3.7 4.8 3.9 4.7 2.5 3.9 121.0 74.0 5.5 1.7 1.3 -0.3 -1.2 PL-0.5 -55.8 0.1 25.8 8.1p4.9 3.4 76.1 48.9 5.0 3.0 2.0 -2.0 -9.1 PT0.9 -105.6 3.1 9.4 5.3p8.9 -0.1p154.3p122.2 9.1 0.7 1.7 -4.1 -11.7 RO-3.3 -44.1 -0.7 23.7 33.6p1.8 1.9p47.8p35.0 5.0 3.3 1.7 -1.2 -5.5 SI5.5 -18.9 2.0 20.4 6.1 7.4 1.3 72.8 70.4 6.6 4.1 3.2 -2.5 -7.5 SK-2.4 -68.1 2.5 3.2 10.9 5.0 2.0 90.9 49.4 8.1 8.9e1.5 -3.6 -11.6 FI-1.4 -2.0 3.0 -3.0 -2.6 -0.2 1.6 142.1 59.0 8.3 19.9 2.1 -0.7 -5.4 SE2.8 10.3 -4.0 -6.3 7.4 -3.0 9.0 200.0 38.8 6.6 -2.9 1.2 -0.3 -3.6 UK-4.3 -10.5 -13.0 -3.8 7.8 0.7 5.3 169.1 85.9 4.4 -0.6 1.0 -0.5 -3.3 Figures highlighted are the ones at or beyond the threshold. Flags:b:Break in series. d:Definition differs. e:Estimated. p:Provisional. 1)Fortheemploymentindicators,seepage2oftheAMR2016.2)Housepriceindexe=estimatebyNCBforEL.3)NominalunitlabourcostHR,d:employmentdatausenationalconceptinsteadofdomesticconcept.4)UnemploymentrateforBE:revisioninthesurveymethodology.5)InTotalfinancialsectorliabilitiesforSK,derivatives are estimated.(cid:9)(cid:9)(cid:9)(cid:9)      Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective Exchange Rate), and International Monetary Fund data, WEO (for world volume exports of goods and services)Year2018External imbalances and competitivenessInternal imbalancesEmployment indicators¹ 
 
 
  
 
57 

Table 2.1: Auxiliary indicators, 2018      Year2018Real GDP (1 year % change) Gross fixed capital formation (% of GDP)Gross domestic expenditure on R&D (% of GDP)Current plus capital account (Net lending-borrowing)(% of GDP)Net international investment position excluding non-defaultable instruments (% of GDP) Foreign direct investment in the reporting economy - flows(% of GDP) Foreign direct investment in the reporting economy - stocks(% of GDP)Net trade balance of energy products(% of GDP)Real effective exchange rate - Euro Area trading partners(3 year % change)Export performance against advanced economies(5 year % change)Terms of trade(5 year % change)Export market share in volume(1 year % change)Labour productivity(1 year % change)Gross non-performing loans of domestic and foreign entities  (% of gross loans)Unit labour cost performance relative to EA(10 year % change)House price index (2015=100) - nominal (3 year % change)Residential construction (% of GDP)Household debt, consolidated (incl. NPISH, % of GDP)Consolidated banking leverage, domestic and foreign entities (total assets/total equity)BE1.5 23.8 na-1.0 36.6 -11.8 170.1 -3.5 2.8 -3.4 0.3 -2.2 0.1 2.3p0.7 9.4p5.8 60.9 13.1pBG3.1 18.8 0.8p6.4 35.4 1.9 82.3 -3.4 -1.1 11.1 7.5 -1.7 3.2p7.7p43.3 24.0 2.7 23.4 7.5pCZ3.0 25.5 1.9p0.6 28.3 3.5 77.5 -2.9 7.6 9.7 1.9 1.0 1.6 2.1p5.0 30.0p4.0 32.3 12.5pDK1.5 22.4 3.1p7.1 11.0 0.3 55.5 -0.2 -1.8 -3.5 1.6 -3.0 -0.3 2.3p-2.2 14.8 4.8 126.4 16.4pDE1.5 21.2 3.1e7.4 44.7 2.7 44.7 -2.0 0.4 1.1 3.5 -1.3 0.2 1.4p11.4 21.7 6.3 53.6 13.9pEE4.8 23.9 1.4p3.4 25.7 3.8 92.7 -1.0 4.1 -1.3 4.3 0.9 3.5 1.3p16.2 17.1 4.6 38.9 6.9pIE8.2 23.4 1.2 -5.8 -251.7 16.8 466.2 -1.4 -3.0 73.8 -0.5 7.0 4.8 5.5p-42.0 31.4 2.4 41.7 6.7pEL1.9p11.1p1.2p-2.6 -130.6 1.8 18.5 -2.4p-1.5 4.7 3.6p5.3p0.2p41.6p-15.1 -1.9e0.7p56.5 11.5pES2.4p19.4pna2.4 -53.6 3.4 65.4 -2.1p-0.2 2.5 -2.3p-1.2p0.1p3.7p-14.5 18.6 5.3p59.0 13.6pFR1.7p22.9pna-0.6 -33.0 2.2 45.8 -1.9p-0.1 -2.2 2.8p0.1p0.7p2.7p-0.3 7.2 6.4p60.0 15.3pHR2.6p20.1pna3.3 -13.7 1.9 48.1 -3.2p1.2 20.5 1.8p4.0p0.8d7.3p-15.5 11.1 na34.2 7.5pIT0.8 17.7 na2.6 -6.2 1.9 27.3 -2.3 -1.3 -1.7 6.0 -1.6 -0.1 8.4p-1.2 -1.4 4.2 41.0 13.1pCY4.1p19.1pna-3.8 -175.0 22.2 1890.1 -4.2p-3.2 14.2 1.4p1.2p0.0p20.2p-9.7 4.4 5.8p97.0 14.1pLV4.6 22.5 0.6p1.1 -2.4 1.3 55.5 -3.4 1.3 6.5 5.0 0.6 3.0 5.3p-4.4 29.3 2.2 20.8 7.8pLT3.6 20.5 0.9p1.8 -2.7 2.7 43.4 -4.0 3.0 1.4 4.5 2.9 2.2 2.6p7.9 23.2 2.7 22.9 10.4pLU3.1 16.8 na6.1 -3523.8 -722.2 7466.2 -3.3 0.4 8.5 -0.2 -2.9 -0.6 0.8p13.4 19.9 3.8 66.3 14.6pHU5.1 25.2 1.5 2.1 -4.2 -43.8 163.1 -3.8 -1.0 6.3 0.3 0.9 2.7 5.3p9.1 45.5 3.0 18.0 9.4pMT6.8 19.0 0.6 12.3 248.0 32.2 1568.6 -8.5 0.3 21.5 2.0 -0.8 1.3 3.1p4.5 17.5p5.2 49.4 12.1pNL2.6p20.3pna10.8 -14.0 -27.3 581.8 -1.5p-0.8 -0.4 1.1p0.3p0.1p1.9p-1.8 23.6 4.8p102.4p16.1pAT2.4 23.9 3.2p2.3 -5.0 0.9 67.4 -2.5 1.7 1.8 1.5 2.5 0.7 2.6p4.7 19.6 4.5 49.6 11.4pPL5.1 18.2 1.2p1.1 -16.9 2.8 47.8 -2.8 -3.0 23.2 3.8 3.6 4.8p6.2p-0.1 12.7 2.0 35.1 9.3pPT2.4p17.6p1.4p1.4 -57.1 2.7 79.0 -2.5p-0.3 7.2 4.8p0.4p0.1p9.4p-6.6 29.0 3.0p66.9 11.0pRO4.0p21.2pna-3.4 -3.9 3.1 44.0 -1.6p-4.1 21.2 5.3p2.0p3.7p5.3p25.9 18.6 3.5p16.0 9.3pSI4.1 19.2 2.0p5.2 -1.9 2.8 39.1 -2.9 -0.4 18.0 2.6 3.2 0.9 6.0p-0.3 22.5 2.1 27.0 8.2pSK4.0 21.2 0.8 -1.3 -16.5 2.4 69.2 -4.1 -0.4 1.1 -1.7 2.0 2.0 3.2p3.9 21.3 3.4 42.1 9.5pFI1.7 23.7 2.8 -1.3 3.9 -1.9 48.9 -2.0 -1.4 -5.0 3.4 -1.2 -0.9 1.5p1.9 2.9 7.3 65.4 16.1pSE2.3 25.9 3.3 1.7 -11.4 1.6 81.1 -1.3 -7.6 -8.2 -1.1 -0.3 0.4 1.0p6.2 14.4 5.4 87.9 18.8pUK1.4 17.0 na-4.5 4.9 1.3 83.9 -0.7 -16.2 -5.7 3.3 -4.3 0.2 1.2p7.8 15.4 3.8 87.2 15.3pFlags:d:Definition differs. e:Estimated. p:Provisional. 1) Official transmission deadline for 2018 data on Gross domestic expenditure on R&D is 31 October 2019 while data were extracted on 25 October 2019. 2) House price index e = estimate by NCB for EL. 3) Labour productivity for HR d: employment data use national concept instead of domestic concept.Source:EuropeanCommission,EurostatandDirectorateGeneralforEconomicandFinancialAffairs(forRealEffectiveExchangeRate),EuropeanCentralBank(forConsolidatedbankingleverageandGrossnon-performingloans,domesticandforeignentities),andInternationalMonetaryFunddata,WEO(forworld volume exports of goods and services) 
 
 
 
 
58 

Table 2.1 (continued): Auxiliary indicators, 2018      %3 year change in pp%3 year change in pp%3 year change in pp%3 year change in pp%3 year change in ppBE1.4 68.6 2.9 15.8 9.2 -3.0 19.8 -1.3 16.4 1.5 4.9 -0.9 12.1 -2.8 BG-0.1p71.5 3.0 12.7 15.0 -4.3 32.8 -8.5 22.0 0.0 20.9 -13.3 9.0 -2.6 CZ1.3 76.6 0.7 6.7 5.6 -1.9 12.2 -1.8 9.6 -0.1 2.8 -2.8 4.5 -2.3 DK1.8 79.4 1.1 10.5 6.8 0.6 17.4 -0.3 12.7 0.5 3.4 -0.3 11.1 -0.5 DE1.4 78.6 1.4 6.2 5.9 -0.3 18.7 -1.3 16.0 -0.7 3.1 -1.3 8.1 -1.7 EE1.2 79.1 1.3 11.9 9.8 -1.0 24.4 0.2 21.9 0.3 3.8 -0.7 5.2 -1.4 IE3.2 72.9 2.1 13.8 10.1 -4.2 nanananananananaEL1.7p68.2 13.6 39.9 14.1 -3.1 31.8 -3.9 18.5 -2.9 16.7 -5.5 14.6 -2.2 ES2.2p73.7 6.4 34.3 12.4 -3.2 26.1 -2.5 21.5 -0.6 5.4 -1.0 10.7 -4.7 FR1.0p71.9 3.8 20.7 11.1 -0.9 17.4 -0.3 13.4 -0.2 4.7 0.2 8.0 -0.6 HR1.8d66.3 3.4 23.4 13.6 -4.5 24.8 -4.3 19.3 -0.7 8.6 -5.1 11.2 -3.2 IT0.9 65.6 6.2 32.2 19.2 -2.2 27.3 -1.4 20.3 0.4 8.5 -3.0 11.3 -0.4 CY4.1p75.0 2.7 20.2 13.2 -2.1 23.9 -5.0 15.4 -0.8 10.2 -5.2 8.6 -2.3 LV1.6 77.7 3.1 12.2 7.8 -2.7 28.4 -2.5 23.3 0.8 9.5 -6.9 7.6 -0.2 LT1.4 77.3 2.0 11.1 8.0 -1.2 28.3 -1.0 22.9 0.7 11.1 -2.8 9.0 -0.2 LU3.7 71.1 1.4 14.1 5.3 -0.9b21.9 3.4 18.3 3.0 1.3 -0.7 8.3 2.6 HU2.4 71.9 1.4 10.2 10.7 -0.9b19.6 -8.6 12.8 -2.1 10.1 -9.3 5.7 -3.7 MT5.4 74.7 1.1 9.1 7.3 -3.2 19.0 -4.0 16.8 0.2 3.0 -5.5 5.5 -3.7 NL2.5p80.3 1.4 7.2 4.2 -0.5 16.7 0.3 13.3 1.7 2.4 -0.2 8.6 -1.6 AT1.7 76.8 1.4 9.4 6.8 -0.7 17.5 -0.8 14.3 0.4 2.8 -0.8 7.3 -0.9 PL0.3p70.1 1.0 11.7 8.7b-2.3b18.9 -4.5 14.8 -2.8 4.7 -3.4 5.6 -1.3 PT2.3p75.1 3.1 20.3 8.4 -2.9 21.6 -5.0 17.3 -2.2 6.0 -3.6 7.2 -3.7 RO0.2p67.8 1.8 16.2 14.5 -3.6 32.5 -4.9 23.5 -1.9 16.8 -5.9 7.4 -0.5 SI3.2 75.0 2.2 8.8 6.6 -2.9 16.2 -3.0 13.3 -1.0 3.7 -2.1 5.4 -2.0 SK2.0 72.4 4.0 14.9 10.2 -3.5 nanananananananaFI2.6 77.9 1.6 17.0 8.5 -2.1 16.5 -0.3 12.0 -0.4 2.8 0.6 10.8 0.0 SE1.9 82.9 1.2 16.8 6.1 -0.6 18.0 -0.6 16.4 0.1 1.6 0.5 9.1 0.4 UK1.2 77.9 1.1 11.3 10.4 -0.7 nananana4.6p-1.5pnanaActivity rate - % of total population aged 15-64(%)Long-term unemployment rate - % of active population aged 15-74(%) Youth unemployment rate - % of active population aged 15-24(%)Young people neither in employment nor in education and training - % of total population aged 15-24People at risk of poverty or social exclusion -% of total populationPeople at risk of poverty after social transfers -% of total populationSeverely materially deprived people -% of total populationPeople living in households with very low work intensity -% of total population aged 0-59Flags:b:Break in series. d:Definition differs. p:Provisional. 1)EmploymentrateforHR,d:employmentdatausenationalconceptinsteadofdomesticconcept.2)YoungpeopleneitherinemploymentnorineducationandtrainingforPL:changesintheweightingprocedure.3)Officialtransmissiondeadlinefor2018datafortheIncomeandLivingConditions (EU-SILC) indicators is 30 November 2019 while data were extracted on 25 October 2019.(cid:9)(cid:9)(cid:9)(cid:9)      Source: European Commission, EurostatYear2018Employment rate(1 year % change)